Housing Development Incentive Program (HDIP)

The Housing Development Incentive Program, or HDIP, is a program specifically for the Commonwealth’s 26 Gateway Cities that is designed to promote market-rate housing production in urban areas outside Boston. The tax incentive program diversifies the housing stock of Gateway Cities while growth the housing stock, supporting economic development efforts, and promoting neighborhood stabilization.

HDIP has two primary features that are provided to developers.

— A local-option real estate tax emption on the new value of the property (called a tax increment exemption or TIE)

— State tax credits for qualified project expenditures that are awarded through a rolling application process

A proposed project will negotiate with the city on the terms of the TIE deal, which include stipulations for hiring local workers and MWBE contractors. The two sides come to an agreement on the percent of new taxes (not the base tax value of the property pre-development) generated by the property that will be exempted over the course of several years. After approval by the city council, the state’s Department of Housing and Livable Communities takes an application from the developer for tax credits which are awarded on a rolling basis four times a year. The end result of this municipal-state partnership is the creation of millions in new tax dollars and hundreds of new housing units for the city using HDIP.

Problem

Massachusetts is in the midst of a housing crisis. Worcester is no different because the city has an estimated shortage of 20,000 units of housing. In the Chamber’s 2019 housing study, it was expected that Worcester would grow to 200,000 residents by 2030, and that the city needed adequate housing production strategies to meet that demand. Instead, when the U.S. Census results were released in 2020, it was found that Worcester hit and exceeded that population mark the very next year.

HDIP is the Commonwealth’s most effective market-based multifamily housing program. It has and will create over 1,000 units of housing in Worcester and catalyze $300 million in private investment using modest tax incentives and state tax credits.

Currently there is not enough funding for HDIP, which has resulted in a backlog of tax credits that could be awarded to eligible developers. HDIP has a mandated cap of $10 million set by the state legislature. As a result in 2022, HDIP had an estimated $57 million in backlogged tax credits. While developers around the state, including in Worcester, wait to hear on their tax credit awards, the construction costs for multifamily continue to rise, underutilized properties continue to languish, and desperately needed housing supply is not built. There are several projects that have waited four or more years for funding before they can continue construction.

Why does HDIP help with market-rate housing? There are many programs that assist developers with income-restricted affordable housing at the local, state, and federal level. However, none exist for market-rate.

In Massachusetts, Gateway Cities like Worcester have long struggled to diversify their housing stock, as they have historically been centers of poverty with few mixed-income neighborhoods. Exacerbating the problem, Gateway Cities have much lower rents than Boston and its surrounding towns, but have similar construction costs because of statewide building regulations. As a result, the return is lower for developers, and market-rate multifamily development typically cannot happen in these urban areas without subsidy. The lenders and equity investors that fund multifamily developers will not fund projects without a certain return on investment, and HDIP helps developers bridge the gap to achieve that respectable level of return.

Solution

At the Worcester Chamber we are in support of Governor Healey’s proposed plan to fund HDIP with $57 million in one-time tax credits to clear the backlog of projects statewide and allocate $30 million to the program in tax credits each year going forward instead of $10 million. We are working with our legislators and the City of Worcester and are part of a coalition of other Gateway Cities trying to make this proposal a reality.

By adequately funding the program, the state can:

Take the burden off Gateway Cities like Worcester that may be forced to do higher local property tax exemptions to make up for the fact that the state is not paying on its end.
Give cities like Worcester the only leverage they have to negotiate with developers on priorities like including mandated amounts of affordable housing in market-rate developments.
Help Gateway Cities revitalize contaminated and/or underutilized properties in underinvested neighborhoods.
Meet the Commonwealth’s demand for over 100,000 new housing units.
Diversify the housing stock of Gateway Cities to create vibrant mixed-income communities.

Worcester

These are the projects in Worcester that have been approved by the City Council and the Commonwealth for HDIP. All projects have revitalized vacant or underutilized properties in the city.