The Hidden Housing Tax: Why Boston Should End Its Inclusionary Requirement

Abstract

Boston requires new buildings of seven or more homes to set aside 17 to 20 percent of their units at below-market rents, averaging 60 percent of area median income (AMI). We estimate what this requirement, Article 79 of the Zoning Code, produces and costs over 2026–2035, holding every other rule at current law.

Repeal would mean about 7,600 more homes over the decade (planning range 4,100 to 15,100) and about 4,400 fewer income-restricted ones. Market rents would be about 0.4 percent lower by 2035.

Those headline figures conceal where the money goes. Once the decade’s homes are occupied, the requirement takes about $190 million a year from landowners, renters and taxpayers. It delivers about $62 million of value to roughly 3,460 households chosen by lottery, and loses about $70 million a year outright. Each winner gains about $17,800 a year. Every renter household in the inner core pays about $130 a year more, and so do renters who earn far less than the winners.

Vouchers could help the same number of households, at lower incomes and with about a third of the waste. They would be paid for openly, from the property tax the additional homes would pay and from general revenue.

We conclude that the requirement is unfair in whom it taxes and whom it helps, and wasteful in how it helps them. Boston should end it for new filings and fund housing assistance on budget.

1. Principal findings

Table 1. Boston, 2026–2035: the inclusionary requirement kept and repealed

Central case. Planning ranges are the 10th–90th percentiles of 20,000 simulations.

The four findings that matter

1. The requirement costs homes. It takes about 13 percent of a project’s value. That figure is cross-checked three ways: the City’s own consultant, our break-even rent model and the rent forgone. The strongest recent causal evidence finds large production losses from mandates this strict. Over the decade, repeal yields about 7,600 more homes, roughly a quarter more than the current path.
2. It produces real but expensive affordability. About 4,400 income-restricted homes over the decade is not a trivial number, and we do not pretend otherwise. The households served are mostly moderate-income: 96 percent of Boston’s inclusionary units serve households above 50 percent of AMI.
3. Its cost is large, hidden and narrowly borne. About $190 million a year is taken from landowners, from renters paying scarcity rents, from would-be residents and from taxpayers. It is never voted on and never appears in a budget.
4. The same goal can be met more fairly and at lower cost. Vouchers would reach as many households, at about half the income, and deliver $2.21 of value per dollar lost against $0.88. The additional homes’ property tax pays about a third of the cost in gross terms.

2. What the requirement is and what it has produced

Boston has required private developers to include income-restricted units since 2000, first as the Inclusionary Development Policy and, since October 2024, as Article 79 of the Zoning Code. In 2023 the City raised the typical obligation from about 13 percent of units to 17–20 percent, deepened the income target from 70 to 60 percent of AMI, and lowered the threshold from ten homes to seven.

Table 2. Article 79 requirements for rental housing

The gap between the two rents is wide. In 2025 the maximum rent for a restricted two-bedroom at 60 percent of AMI is $1,680 a month. A new two-bedroom in Allston-Brighton rents for about $4,150. Each restricted unit therefore gives up about $2,470 a month, or $29,600 a year.

What the policy has produced, according to the City’s 2025 report on income-restricted housing:

• 4,406 units on-site and off-site since 2000, about 7 percent of Boston’s 59,439 income-restricted homes. A further 2,849 units have been supported by its fee fund.
• About 300 to 550 completions a year from 2015 to 2024. Permitted inclusionary units fell from 389 in 2022 to 103 in 2024, the year the higher requirement took effect.
• Shallow targeting. 69 percent of units serve households at 61–80 percent of AMI. Only 4 percent serve households at or below 50 percent, and 1 percent at or below 30 percent.

The requirement is, in effect, a program of moderate-income housing financed off the City’s books by the residents and landowners of new buildings.

3. The evidence that it reduces housing

An inclusionary requirement works like a tax on new construction that is spent on a few of the new homes. Whether it reduces building depends on how large the tax is and whether anything offsets it. Boston’s is large, and nothing offsets it.

3.1 What the research finds

Table 3. Peer-reviewed and working-paper evidence

The null findings come from mild or compensated programs. Montgomery County, Maryland, pairs its set-aside with a density bonus. The strictness of a mandate matters more than whether one exists. By Kouchekinia’s measure, Boston’s requirement gives up about 10–11 percent of project rent, more than twice the typical California ordinance.

3.2 What happened elsewhere

• Portland, Oregon (2017). Multifamily filings fell about 40 percent from their 2016 peak, partly because population growth slowed. Projects sized just below the 20-home threshold doubled to nearly half of all projects. Developers returned only after the City and County funded a tax abatement worth about $220,000 per restricted home.
• San Francisco. The City’s advisory committee found no prototype project financially feasible at the 2022 rates. In July 2026 the Board of Supervisors cut the on-site requirement to 5 percent.
• Seattle. Through 2023 the program yielded about 400 on-site restricted units and $300 million in fees. Small buildings were lost along the program’s boundaries.
• Waltham and Chelsea lowered their requirements in 2026.

3.3 What Boston’s own studies show

The City’s 2023 feasibility study by RKG Associates is the most telling source, because the City commissioned it to inform the increase.

• Land value collapses. At a 20 percent set-aside and 60 percent AMI, a 200-home Allston-Brighton building could pay only about $4,300 per home for land. RKG judged that scenario infeasible without offsets for every rental prototype.
• The cost per restricted unit is large. RKG put the value given up per restricted rental unit at $428,000 in Allston-Brighton and $629,000 downtown.

Our own working paper on break-even rents goes further. At 2026 rents, a fully deregulated Brighton building has a land value of approximately zero. In today’s market there is little land rent left for the requirement to tax. Its cost therefore shows up as buildings that are not built.

Table 4. Three measures of the requirement’s cost

4. Ten years with and without the requirement

We model Boston from 2026 to 2035 twice, with the requirement and without it, holding every other rule at current law. Production in covered projects scales with project value. Removing a cost equal to 13 percent of value raises covered production by a factor that depends on the supply elasticity. Appendix A gives the parameters.

Because today’s market is underwater even without the requirement, only a quarter of the long-run effect is assumed to arrive in 2026–27. It rises to 60 percent in 2028 and to the full effect from 2029.

Table 5. Ten-year outcomes

Three points about these numbers deserve emphasis.

1. The rent effect is modest. The additional homes are under 1 percent of the regional market renters choose among. We do not claim that repeal alone will make Boston affordable. It will not. Rents within a few blocks of new buildings fall more: Asquith, Mast and Reed find 5–7 percent.
2. The additional homes help lower-income households indirectly. Each 100 new market-rate homes open about 70 homes in below-median-income neighborhoods as households move up a chain of vacancies (Mast). Those homes carry no restriction and no lottery, but they are real.
3. The forgone restricted homes are real too. Repeal gives up about 4,400 restricted homes, including voucher set-aside and fund-supported units. Any honest case for repeal must say what replaces them. Sections 7 and 9 do.

5. Who pays and who benefits

A below-market apartment is not free. Somebody gives up the $29,600 a year that each restricted unit forgoes, and somebody bears the cost of the homes the requirement prevents. To find out who, we built a ledger. It puts a dollar value, in a typical year once the decade’s homes are occupied (about 2035), on the gain or loss to every affected group.

Two worlds are compared against a common baseline of repeal without replacement. Positive figures mean a group is better off. The ledger balances: the net equals the sum of the waste items in Table 7.

Table 6. Annual gains and losses, central case ($ millions a year, against repeal alone)

The burden falls in three places.

• Owners of development land, when the market allows. On sites that still get built, the cost comes out of the land price: about $1.9 billion over the decade in capitalized terms. In today’s market there is little land rent to absorb it. The cost then falls on buildings not built and on renters instead.
• Renters. Fewer homes mean slightly higher rents for every tenant in the inner core, about $62 million a year. Owners of existing buildings and homes receive it; the program receives none of it.
• Taxpayers and would-be residents. Taxpayers lose property tax on homes never built. Would-be residents lose homes they would have chosen.

Table 7. Where the $70 million a year is lost

Table 8. The supply elasticity changes who pays, not whether the cost is paid ($M a year)

The winners’ valuation matters as much as the elasticity. If winners value the discount at 35 percent of its cost, the net loss is $95 million a year. At 90 percent it is $39 million. In every case we tested, the requirement leaves Boston’s residents, taken together, worse off.

6. Fairness: lottery winners, renters and taxpayers

A housing policy is fair if it helps those who most need help, treats people in like circumstances alike, and raises its cost from those best able to bear it, openly. Article 79 fails on each count.

6.1 It treats like households unalike

Consider two nurses at the same hospital, each heading a two-person household on $75,000 and each applying for the same building’s lottery. One wins a new two-bedroom $2,470 a month below its market rent, a benefit worth about $17,800 a year to her for as long as she stays. The other loses. She pays about $130 a year more for her apartment, because the requirement has left Boston with fewer homes.

Nothing distinguishes the two except chance. A public benefit worth more than $17,000 a year, given to one household and withheld from an identical one by lottery, is not a fair way to share a public cost.

6.2 It helps those who need it least among those it could help

The requirement’s restricted units average 60 percent of AMI, up to $89,340 for a household of three.

• Shallow reach. 96 percent of Boston’s inclusionary units serve households above 50 percent of AMI. Only 1 percent serve those at or below 30 percent, the extremely low-income households in the most acute need.
• Those households pay too. The poorest renters are not served by the program, yet they pay its scarcity rents like everyone else. A household earning $40,000 helps finance a discount for a household earning $85,000.

6.3 It moves money from renters to owners

The requirement’s least-noticed effect is its most regressive. By holding back supply, it raises rents throughout the inner core by about $62 million a year. That money does not go to the program or its tenants. It goes to the owners of existing apartments and homes, who are, as a group, wealthier than the renters who pay it.

A policy presented as a transfer to moderate-income renters is, on its rent side, a transfer from renters to property owners.

6.4 It taxes a narrow base for a general purpose

Decent housing for working households is a goal of the whole city. The ordinary principle of public finance holds that a general purpose should be paid for from a broad base, according to ability to pay. Article 79 instead levies its cost on:

• whoever happens to own a site when a project is proposed;
• whoever happens to rent in a market made tighter;
• whoever would have moved into a home that was never built.

None of these groups was chosen because it can afford to pay, or because it caused the shortage.

6.5 It escapes democratic accountability

The requirement’s implicit subsidy, about $100 million a year once the decade’s units are occupied, never appears in a budget. The City Council never weighs it against schools, transit or public safety, and no voter sees it on a tax bill.

This is the source of the requirement’s political durability. Its beneficiaries are identifiable: a family photographed at a ribbon-cutting. Its costs are spread across tens of thousands of renters and would-be residents who will never know what they paid. Public choice economists call this fiscal illusion, and psychologists call the asymmetry the identifiable-victim effect. A city committed to good government should prefer costs it can see.

7. Efficiency: making the most of scarce public resources

Every dollar spent on housing assistance is a dollar not available to another household in need. The question is not whether the requirement helps anyone; it plainly does. The question is whether the same resources could help more people, or poorer people, if used another way. They could.

Table 9. Two ways to help 3,460 households

Four sources of waste stand out.

1. The wrong form of help. The requirement gives a household a specific new apartment, priced at the top of the market, which it would rarely choose to buy at that price. A voucher lets the household choose. Olsen and Early find vouchers deliver about 77 cents of value per dollar of cost, against 19–51 cents for building-based programs.
2. The cost per restricted home is very high. The City’s consultant put the value given up per restricted rental unit at $428,000 in Allston-Brighton. Portland’s tax abatement secures a restricted home there for about $220,000. The requirement is an expensive way to produce an affordable home. It looks cheap only because someone else pays.
3. The lost tax base. The homes the requirement prevents would pay about $32 million a year in property tax by 2035. Under Proposition 2½, new construction is one of the few ways the levy limit grows. A requirement that suppresses building suppresses the revenue that could fund assistance openly.
4. The homes not built. The conventional deadweight loss is about $13 million a year in the central case and $31 million in the high case. It is the smallest of the four, because the requirement’s cost falls largely on land rent where land rent exists. That is not a defense of the requirement. It shows that the problem is less the tax than the way it is spent.

Put simply, the requirement’s hidden subsidy, about $100 million a year, would fund about 3,900 vouchers for extremely low-income households. Those households would be poorer than the ones it now serves, chosen by need rather than by lottery, with no homes lost.

8. Objections and responses

The requirement has thoughtful defenders. Their strongest arguments deserve direct answers.

“Repeal means thousands fewer affordable homes.” True, and we say so: about 4,400 over the decade. The question is what replaces them. Vouchers for the same number of households cost $65–89 million a year, depending on the income served. The additional homes’ property tax covers about a third, and the rest is an explicit appropriation. Repeal without replacement is not our proposal.

“The evidence is mixed. Several studies find no effect on supply.” It is mixed for mild programs. The null results come from programs with density bonuses, fee options or modest set-asides. Studies of strict, uncompensated mandates in hot markets find substantial losses. Boston’s is far stricter than the programs that show no effect. San Francisco’s own committee found no prototype feasible under its old rates.

“Developers should share their profits with the community.” In a competitive industry, developers earn a normal return or do not build. Our working paper on break-even rents finds little profit or land rent left to share at 2026 rents. Where land rent exists, the efficient way to capture it is a tax on land value, which does not depend on whether anyone builds.

“Mixed-income buildings integrate neighborhoods.” That is a genuine benefit, and it is the requirement’s strongest argument. But it reaches about 350 households a year. Vouchers with Boston’s zip-code payment standards ($2,827–$4,452 for a two-bedroom) can reach high-opportunity neighborhoods across the whole housing stock, not only the newest buildings.

“Vouchers do not work in a tight market.” They work less well. Landlords capture 13–20 cents of each additional voucher dollar (Collinson and Ganong). In supply-inelastic metros, voucher expansions raise mid-market rents (Eriksen and Ross). In Greater Boston testing, 90 percent of voucher holders met discrimination. Each problem is worse when housing is scarce. That is an argument for pairing vouchers with the additional supply repeal brings, enforcing source-of-income law, and phasing vouchers in as homes are completed.

“Vouchers can be cut in a lean budget; deed restrictions cannot.” This is a serious point. Durability is the requirement’s real advantage over appropriations. Our answer is to make the replacement durable too: a dedicated fund, established by ordinance, and financed first from the new-growth revenue the additional homes generate.

“Repeal will not restart today’s stalled projects.” Correct. Cambridge’s 2026 feasibility study and our own working paper both find that costs and interest rates, not the set-aside alone, are the binding constraint today. The case for repeal rests on the decade, as the market recovers, and on fairness. It does not rest on an immediate construction boom.

9. What Boston should do instead

The principle is the one we apply across our platform. First, remove the costs the City itself imposes on new homes. Then pay for public goals openly, on published terms that are the same for everyone.

1. End the requirement for new filings. Repeal Article 79 for projects filed after the effective date. At a minimum, exempt qualifying developments under our proposed zoning for Allston-Brighton.
2. Honor every existing commitment. The 4,406 existing inclusionary units keep their 50-year restrictions. Projects with executed affordability agreements keep them.
3. Establish a Boston Housing Voucher Fund by ordinance. The fund would provide about 3,460 vouchers over the decade, phased in as the additional homes are completed from 2028.
   • Targeting: households at or below 50 percent of AMI, with priority below 30 percent.
   • Payment standards: the Boston Housing Authority’s zip-code levels.
   • Cost: $65–89 million a year at maturity.
   • Financing: first from the property tax on the additional homes (about $32 million a year gross by 2035), then from general revenue.
4. Keep voucher holders’ access to new buildings. Replace the 3 percent voucher set-aside with project-based voucher contracts offered on published terms to any building that wants one.
5. Bridge the transition. Use Linkage and Community Preservation Act funds in 2027–30 to cover the fee-fund projects the requirement would have financed.
6. Make vouchers usable. Fund enforcement of the Commonwealth’s source-of-income discrimination law and housing-search assistance.
7. Publish the ledger every year. Report covered permits against the with-requirement path, vouchers issued, and their cost. If covered permits are not at least 15 percent above that path by 2030, the City should revisit the policy.

The plan needs no new taxing authority. If the Commonwealth later allows a tax on land value or a betterment levy, it would be the most efficient way to recover land rent for public purposes. The plan does not depend on it.

10. Limitations

These are planning estimates, and five assumptions matter most.

• The supply elasticity. The elasticity of covered production with respect to project value is the least certain parameter. Our range runs from 0.75, consistent with the null studies, to 5, consistent with Kouchekinia at Boston’s strictness. Kouchekinia’s paper is a 2026 working paper, not yet peer-reviewed. The direction of every conclusion holds across the range; the magnitudes do not.
• The winners’ valuation. We value the restricted-unit discount at 60 percent of its cost. At 35 to 90 percent the net loss runs from $95 million down to $39 million a year.
• The rent effect. The rent effect assumes renters substitute across the inner core. If Boston’s rents responded only to Boston’s own housing stock, the central effect would be about 1.1 percent rather than 0.4 percent. The aggregate rent transfer in the ledger is nearly the same either way.
• Fiscal effects. Property tax is counted net of an assumed 50 percent service-cost offset. Agglomeration gains from more people working in Boston are excluded. Including them would strengthen the case.
• Timing. The model assumes the market recovers enough for repeal to matter from 2028. If high costs and interest rates persist longer, both the additional homes and the forgone restricted units arrive later.

The share of permits in covered projects is calibrated to the City’s reported inclusionary production for 2015–2024. The model code is available on request.

11. Conclusion

Boston’s inclusionary requirement was adopted with good intentions, and it has housed thousands of households who would otherwise have struggled to stay in the city. Those households are real, and so is the debt the City owes them: their homes should stay protected.

The requirement is, however, a hidden tax.

• Who pays. It falls on the owners of land, the renters of an under-built city and the households who never get to move in.
• Who gains. It gives a large benefit to a small number of moderate-income households chosen by chance.
• What it costs. Boston gives up more value than it delivers, and moves money from renters to property owners along the way.

A city that takes fairness seriously would not choose its beneficiaries by lottery and its contributors by accident. A city that takes scarce public resources seriously would not spend about $100 million a year in a way that loses more than a dollar for each dollar of help.

The alternative is straightforward. Let the homes be built. Count the cost of assistance openly. Pay for it broadly, beginning with the tax revenue the new homes provide. Direct it to the households who need it most. Boston can house more people, and help poorer people, for less. It should end the requirement.

Appendix A. Model and parameters

A.1 Production

Covered market-rate production scales with net project value raised to the supply elasticity η. Removing a requirement that costs a share c of value multiplies long-run covered production by:

Q_repealed / Q_kept = (1 / (1 − c))^η

A.2 Rents

The change in rent is the additional homes completed, divided by the effective market stock, times the rent flexibility β.

ΔR / R = −β × ΔQ₂₀₃₅ / H_effective

A.3 The ledger

The ledger counts annual flows once the decade’s homes are occupied. It balances by construction: the net equals the sum of three waste terms.

Net loss = (1 − λ) S + ½ ΔQ · c V r + ΔQ · t (1 − s)

Here S is the rent forgone on restricted units, λ the winners’ valuation, V the value per home, r the cap rate, t the property tax per home and s the service-cost offset.

Table A1. Parameters

The Monte Carlo draws 20,000 parameter sets from triangular distributions. It reports the 10th, 50th and 90th percentiles.

Sources

Research

1. Asquith, B., E. Mast and D. Reed (2023). Local Effects of Large New Apartment Buildings in Low-Income Areas. Review of Economics and Statistics. Summary.
2. Bento, A., S. Lowe, G.-J. Knaap and A. Chakraborty (2009). Housing Market Effects of Inclusionary Zoning. Cityscape 11(2).
3. Buchanan, J. (1967). Public Finance in Democratic Process: Fiscal Institutions and Individual Choice. University of North Carolina Press.
4. Collinson, R. and P. Ganong (2018). How Do Changes in Housing Voucher Design Affect Rent and Neighborhood Quality? AEJ: Economic Policy. Working paper.
5. Eriksen, M. and A. Ross (2015). Housing Vouchers and the Price of Rental Housing. AEJ: Economic Policy. Working paper.
6. Hamilton, E. (2021). Inclusionary Zoning and Housing Market Outcomes. Cityscape 23(1).
7. Kouchekinia, N. (2026). Inclusionary Zoning and Housing Supply: Evidence from California’s Palmer Fix. Working paper, UC Irvine.
8. Krimmel, J. and B. Wang (2023). Upzoning With Strings Attached. Cityscape. Discussion.
9. Mast, E. (2023). JUE Insight: The Effect of New Market-Rate Housing Construction on the Low-Income Housing Market. Journal of Urban Economics. Summary.
10. Olsen, E. and D. Early (2023), as summarized in Market Urbanism (2024).
11. Schuetz, J., R. Meltzer and V. Been (2011). Silver Bullet or Trojan Horse? The Effects of Inclusionary Zoning on Local Housing Markets in the United States. Urban Studies 48(2). Summary.
12. Small, D. and G. Loewenstein (2003). Helping a Victim or Helping the Victim: Altruism and Identifiability. Journal of Risk and Uncertainty 26(1).
13. Suffolk University Law School (2020). Qualified Renters Need Not Apply.

Boston and Massachusetts

14. Allston Heritage Foundation (2026). A market-clearing housing strategy for Boston and Allston-Brighton, and Working Paper 2026-01 on break-even rents.
15. Boston Housing Authority (2025). Payment Standards, effective July 1, 2025.
16. Boston Indicators (2025). How many homes are we actually building?
17. City of Boston (2024). Zoning Code Article 79, Inclusionary Zoning.
18. City of Boston (2025). Income and Rent Limits, All IDP.
19. City of Boston (2025). Income-Restricted Housing in Boston.
20. RKG Associates (2023). City of Boston Inclusionary Development Policy Analysis.
21. Boston Globe (2025). City Council sets 2026 property tax rates.
22. Boston Globe (2026). Should cities ease requirements on builders?
23. Cambridge Day (2026). City proposes reducing inclusionary zoning rules.

Other cities

24. Portland Housing Bureau. Inclusionary Housing Calibration Study.
25. Reuben, Junius & Rose. San Francisco’s inclusionary housing rate reductions.
26. Sightline Institute. Portland’s inclusionary housing.

Figures are planning estimates from the Foundation’s model of Boston housing production, with ranges shown where they matter.