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The following is a letter to the editor of Cambridge Day, published .

A Somerville focus on commercial development would be profoundly counterproductive

Tuesday, August 29, 2023

At community meetings and in discussions about development in Somerville, it is common to hear some longtime residents speak in favor of all-commercial development and against residential buildings, arguing that Somerville’s tax base – in which commercial properties made up just 16.65 percent of total value in fiscal 2023 – is out of balance.

Their position is anchored on assumptions in a report produced by financial consultants TischlerBaise in 2017, which analyzes the cost of different kinds of development to the city. The resulting policy recommendations are most explicitly laid out by Bill Shelton in a 2019 essay that is still routinely circulated and even cited by city planners.

In it, Shelton claims that residents are a net negative for the city: Families with children require expensive schooling, while families without children, although they may bring net positive tax revenues, are undesirable because they do not contribute to the social fabric. Rather than scarcity, he says, “the greatest obstacle to housing affordability is insufficient commercial development.” Therefore, the city should limit the production of housing and focus on encouraging growth in our commercial tax base. With that new revenue, the city could reduce residential taxes or subsidize existing housing for existing residents.

This approach would be profoundly counterproductive. As we’ve seen regionally and in places such as San Francisco, over-weighting commercial development without permitting housing growth accelerates displacement. Adding jobs attracts new residents, and they need somewhere to live. Skyrocketing prices caused by a housing shortage then require ever-higher salaries, which in turn drive the cost of everything else higher. Failing to permit new housing construction would not stop those residents from coming – it would merely accelerate the displacement of lower- and middle-income Somerville residents and even risk hollowing out our commercial spaces, as only the highest-margin businesses can survive.

Relative housing deficit since 2010 as a line chart, showing population outpacing housing units since 2010

One of the main arguments that Shelton puts forward is that Somerville needs commercial development to lower our residential tax burden. He points out that “Boston and Cambridge have more money because they have more commercial property.” This overlooks one of the many constraints imposed by Proposition 2½, which governs property tax growth: Somerville is legally limited in the amount of tax burden that can be shifted toward commercial developments, and has already completed the maximum allowable shift. Additional purely commercial growth will not reduce Somerville’s residential tax burden because the law limits our ability to tax commercial developments if residential development does not keep pace. Instead, it is new residential growth that will allow Somerville residents to continue to have a low tax burden while growing our overall tax base naturally.

It’s true that Somerville’s $330 million annual budget doesn’t go as far as we’d like, and it’s true that Proposition 2½ means that to grow our city’s tax revenues we need new development. The current mix of revenue is not gravely out of balance, though: According to the state’s Department of Local Services, Somerville is the 13th-largest city in Massachusetts and has the 10th-largest commercial tax levy. Perhaps “out of balance” may have been more accurate in 2019, but with the addition of office and lab space in Assembly Square, Union Square and Boynton Yards, it’s hard to claim that the city still has a serious deficit of commercial space. Nor does it have too many residents: We’re still well below our 1930 population peak of 103,908.

Historical Somerville population, showing we are 22% less populous than our peak population in 1930

Moreover, since the Covid pandemic and the rise of work-from-home office jobs, the economics of commercial development have changed, making it more difficult to attract and tax new commercial development. Lab work, of course, remains difficult to do from home, but there are only so many laboratory buildings even our regional economy can support. Focusing solely on commercial development at this point poses a very real risk of trying to attract projects that won’t get built or, worse, get built but go underused or vacant. The post-Covid office realignment is in progress and has only accelerated in the past year, and we should not plan the future of our city on a “return to normal” that seems more than a decade away.

Bar chart, one bar per quarter, starting in quarter 4 of 2021, ending at quarter 2 of 2023, showing Greater Boston office occupancy and vacancy

Fortunately, Shelton’s calculations about new residents being a drain on the city’s finances are incorrect. While newcomers do use city services, they also generate municipal revenue, not just in the form of their real estate taxes but through all their other local economic activity. Moreover, mixed-use development can place residents near retail, especially since more residents can now choose to work from home, reducing the amount of car traffic and its attendant expenses.

Critically, Shelton and the TischlerBise report assume that 100 percent of new housing development would be owner-occupied units taking advantage of the residential tax exemption. In reality, approximately two-thirds of Somerville housing is renter-occupied, and rental properties generate significantly more tax revenue than owner-occupied dwellings. When the TischlerBise report is adjusted for property tax exemption (highlighted in red in the chart below), “neighborhood residential” and “mixed-use homes” add to the city more than they use in services.

Weighted revenue of Neighborhood Residential Units and Mixed-Use reisdential units

While robust commercial development, new jobs and growing tax revenue are indeed welcome in Somerville, our region and our city also lack enough homes for people to live in. And until we zone for growth in our housing stock, especially in neighborhoods such as Porter, Davis, Teele and Ball squares, where housing developments have been actively discouraged, we will see continued deterioration of affordability and accelerating displacement.

Aaron Weber, Ward 3; Patrick Dignan, Ward 2; Timothy Hutama, Ward 1; Noah Harper, Ward 6; Jeff Byrnes, Ward 5; and Marion Davis, Ward 1