Lets Get the Facts Straight

Author: Carl Sussman

Let’s Get the Facts Straight!

As a member of the Maurice’s Campground Planning Committee (MCPC), I understand a lot of the feelings and opinions people hold concerning the master plan and the process for developing this parcel. However, many of Eric Schwaab’s posts and the comments posted in response to them contain important factual errors. Admittedly, housing programs (and the residential real estate development and finance process more generally) are frustratingly complicated. While Facebook provides a poor environment for exploring those complexities, I would like to clarify several key factual points. 

Why Financial Feasibility is so Challenging

Wellfleet purchased Maurice’s because it is one of the town’s few developable parcels of scale. The goal is to develop housing that is unavailable in Wellfleet’s torrid residential real estate market. There are a few year-round rentals in town, and tenants fortunate enough to lease one of these often face high rents and the ever-present threat that the landlord might raise the rent, sell the property, or opt not to renew the lease. Moreover, the median home price in Wellfleet exceeds $1 million, putting homeownership out of reach for many households working on the Lower Cape, even households with two breadwinners. Finally, it is extremely costly to build homes because the cost of building materials and labor continues to rise at a faster rate than inflation.

Mind the Gap

To build new housing and keep rents or purchase prices within reach of those who can’t afford market prices, you must find sources of subsidy to close the gap between what residents can afford and the cost of building new housing. Most of that comes from the state and federal governments. The most generous source for relatively low-income families and individuals is the federal Low Income Housing Tax Credit (LIHTC). Corporations can purchase these tax credits to shelter profits from federal taxes. 

The LIHTC is a very convoluted way to subsidize development costs. Sadly, the politics of winning housing subsidies only seem to happen if wealthy corporations can rake in some money through a tax break. That, fundamentally, is how the LIHTC works. 

The tax credit structure adds to the transaction costs and complexity compared to simply using government funds to subsidize the construction of housing. Nonetheless, it generates a significant capital subsidy in the form of equity. Equity functions like a larger down payment on a home loan: it reduces the size of the mortgage loan needed to finance the purchase and construction of homes and, therefore, makes the monthly principal and interest payments more manageable.

So, Why is the State in the Middle of the Federal Program?

Each state gets an annual allocation of LIHTC to distribute to developers of affordable rental housing. States are required to adopt a Qualified Allocation Plan (QAP). that spells out the criteria and scoring used to evaluate each developer’s application for tax credits. That document reflects the state’s housing policy priorities and must also satisfy a variety of federal regulations. 

Massachusetts’s QAP prioritizes family, rather than elderly housing. So, in most cases, 65% of the units must have two bedrooms, and at least 10% of the units must be three-bedroom units. Thus, LIHTC-financed projects have relatively fewer studio or one-bedroom units.

Financial Feasibility Dictates Scale and Density

The principal problem found throughout many of the Facebook Posts and threads about Maurice’s overlooks the central challenge in developing below-market-rate housing. Public subsidies alone are insufficient to achieve feasibility.

The high cost of labor, construction materials, financing, and land requires that projects be big enough to achieve economies of scale. These economic factors, not the state’s Executive Office of Housing and Livable Communities, drive scale and density decisions. The per unit development expenses for planning, legal and transaction costs decline with scale. Also, cost-efficient development strategies, like clustering units, reduce infrastructure costs. 

In addition to these “scale economies,” multi-family buildings also bring down the costs: Shared walls separating units, as well as other shared facilities, significantly lower construction costs when compared to free-standing homes. 

Since subsidies, like LIHTC, do not provide enough funding to cover the cost of construction, to reduce the cost of each housing unit, developers rely on “clustering,” like townhouse or multifamily buildings, in addition to the economies of scale that come with building more units. Towns often help as well by providing free public land for development, as in the case of Maurice’s. 

Smart and Sustainable Development Principles

Compact development has an environmental benefit as well and, therefore, is among the sustainable development principles embedded in the state’s QAP. The goal is to encourage the reuse of previously disturbed sites, like Maurice’s, rather than despoiling undeveloped land the way market-rate subdivisions continue to do in Wellfleet. 

Incidentally, the proposed development also provides other environmental benefits. The new development will reduce nitrogen loading currently caused by the untreated wastewater that continues to flow from the campground’s cesspools and will create a natural buffer along the Silver Spring Brook. State wildlife protection laws require a 200-foot buffer along waterways. Maurice’s currently has trailers within that buffer area.

A House, a Yard, and a Picket Fence

Many of the Facebook posts about Maurices suggest a variety of other housing types would be more desirable than what has been proposed in the Master Plan. We would love to have everyone, regardless of income, be able to become homeowners and realize the American Dream of a single-family house with a yard. Unfortunately, no government programs are currently available for affordable or attainable homeownership in Wellfleet, and the Town does not have enough money to subsidize these units at the level required.  

At Maurice’s, developers will be encouraged to include a reasonable percentage of affordable and attainable homeownership units in their plans, and we welcome the participation of groups like Habitat and HAC, who have produced such units on a small scale. However, the town’s goal is to provide as many households as possible with an affordable home and secure occupancy in a safe community. Wellfleet cannot subdivide its way out of its housing crunch.

Forget about 40B

Finally, Wellfleetians need not worry about the developer of Maurice’s using the state’s Chapter 40B process to bypass local zoning. The town itself owns the land and, therefore, it can dictate what gets built at Maurice’s, provided, of course, that the development is financially feasible. The Maurice’s Campground Planning Committee will propose a zoning overlay district. The Planning Board will hold hearings on the proposed overlay. That plan will then have to be approved by both the Selectboard and Town Meeting. In short, Wellfleet’s future is securely in Wellfleet’s hands. 

The town plans to issue a request for proposals from developers. The town will then have contractual control over what the chosen developer does. The developer will not have recourse to Chapter 40B to bypass the town’s permitting process. 

However, if the town abandons this plan and instead sells the property to a developer, the threat of an “unfriendly” 40B is indeed possible.