The following column was published in the September 15 edition of Banker & Tradesman.
With the 2019–2020 Massachusetts legislative session approaching the halfway point, it is a good time to take stock of where things stand and what legislative proposals could affect the commercial real estate industry.
The current legislative session began in January 2019 and will conclude on July 31, 2020. With more than 7,000 bills filed to date – and more expected – Massachusetts legislators have the ability to make dramatic changes affecting every aspect of society.
As legislators consider proposals affecting commercial real estate and economic development, in general, they must also consider the economy for the year ahead. The Greater Boston market is currently viewed as a stable market for investment; and while vacancy and unemployment rates remain low, warning signs of a coming economic downturn are on the horizon.
The pace of economic growth in Massachusetts has not kept pace with that of the nation over the past year. In the second quarter of 2019, Massachusetts GDP grew at a 1.4 percent annualized rate, while U.S. GDP grew at a 2.1 percent rate. In addition, in August, the 10-year Treasury yields fell below the rate on 2-year notes for the first time since 2007. This inverted yield curve has been an indicator of coming recessions for the past 50 years.
This, combined with escalating trade wars and geopolitical uncertainty, highlight the need for careful consideration of the potential statewide impact of legislative proposals.
While it is nearly impossible to predict how the session will end, legislative leaders have expressed an interest in tackling some significant policy issues including tax revenue, housing and climate change. Given the impact these issues will have on commercial real estate, the details matter.
Revenue has been a popular word on Beacon Hill in recent months, with numerous transfer tax proposals filed. The bills all seek to create revenue for a variety of funding priorities, including affordable housing, climate change, education and transportation.
However, the transfer tax is not the best approach to adequately address these issues, particularly since the revenue will be pegged to the real estate market.
With anticipated market instability, these taxes many not serve as a stable funding source. If passed, they will increase the cost of housing and commercial development, which has the potential for negative ripple effects throughout the economy.
Given the environmental, public health, safety and economic development threat posed by climate change, legislation on this issue is expected this session.
The House passed H. 3846, An Act Relative to GreenWorks, in July. It is a $1.3 billion energy and resiliency bill designed to offset climate change, creating a new grant program for cities and towns throughout Massachusetts to fund projects focused on climate resiliency. It is modeled after the successful MassWorks infrastructure program and builds on the Environmental Bond Bill passed in 2018.
Climate change affects all residents of the commonwealth. Therefore, the burden for addressing this issue should be shared.
Unlike transfer tax proposals, which only target a subset of the population and may drive up the cost of housing, GreenWorks is a far more equitable approach and should be a top priority for the legislature.
Finally, one of the most significant economic issues in need of legislative action is the current housing crisis.
The supply of housing is not keeping up with demand, which in turn is driving up rents and home sale prices. An Act to Promote Housing Choices (H.3507) provides a clear framework for cities and town to encourage new housing production.
The bill, which has the support of the Massachusetts Municipal Association, the real estate industry, affordable housing groups like CHAPA and business leaders, allows cities and towns to adopt zoning best practices by a simple majority vote, rather than the current two-thirds supermajority.
Whether it’s senior housing or multifamily housing, countless units are never built because of the need for a supermajority vote. Given the broad support for this bill, the legislature needs to act on this legislation in advance of spring town meetings, where countless projects will be up for review at the local level.
While these are only a few of the issues expected to move this session, it’s clear that decisions made at the State House over the next 10 months will have a significant impact on the real estate industry for years to come. NAIOP will continue to work with legislators to ensure that the economic impacts of legislation are considered and that Massachusetts remains a great place to live and work.