Local Revenue is a Key Tool to Advance Housing Affordability

Affordable Housing Is Part of an Equitable Commonwealth

All residents of Massachusetts deserve access to affordable, safe, and stable housing. This access has been eroded over many years due to policy choices at the federal, state, and local levels. At the federal level, a sustained decline in housing investment and public housing production has shifted the responsibility of housing investment to state and local governments.¹ However, state and local investments have historically been insufficient and housing production has also failed to keep up with demand. The Healey Administration has estimated that the Commonwealth must produce 222,000 units of housing in the next 10 years in order to address the housing crisis.² This shortage disproportionately impacts lower-income renters: the National Low-income Housing Coalition (NLIHC) has estimated that the Commonwealth faces a shortage of more than 170,000 units that are affordable to households earning less than the poverty guideline or less than 30 percent of their Area Median Income.³

The Commonwealth’s housing crisis has led to significant wealth increases for property owners, for whom the rapid increase in housing costs has translated into higher real estate values. From July 2016 to July 2024, the median listing price for a home in Massachusetts increased by more than $360,000 or 82 percent, dramatically outpacing inflation.⁴ But for those excluded from this wealth creation, housing has remained unaffordable. More than half of Massachusetts renters are rent-burdened, meaning that they spend more than 30 percent of their income on rent. Rent burden also disproportionately impacts Black and Latino renters: 55.6 percent of Black renters, and 56.5 percent of Latino renters, are rent-burdened compared to 47.2 percent of white renters.⁵ Additionally, because of deep racial disparities in the Commonwealth’s homeownership rates, wealth creation from real estate has disproportionately benefited white households.⁶

Public investment is a key component of an equitable approach to housing, alongside increases in overall housing production. Significant investment is needed to develop housing that is affordable to residents with very low incomes, as it is generally not profitable enough for developers to build without deep subsidies. Closing this gap will require sustained investment in affordable housing, and revenue sources that create flexibility at the local level.

Local Investments Can Help Communities Address Affordable Housing Needs

Cities and towns have the potential to contribute to meeting affordable housing needs. Local governments, which typically oversee development in their communities, have a close vantage point from which they can assess local challenges and specific opportunities to create or preserve affordable housing. For example, some communities may be more densely developed, requiring a greater focus on acquisition and preservation. Others may need to focus on acquiring or building on undeveloped land, or on needs specific to seasonal communities such as those on Cape Cod. Local governments can acquire and transfer public land, conduct due diligence work on developments, and more easily identify affordable housing units that are at risk of reverting to market-rate housing without extended subsidies.

However, even when a community is highly motivated to create affordable housing, a lack of financial capacity often limits opportunities. State investment in housing has increased, but the level of unmet need remains high. Additionally, cities and towns face significant legal constraints on their ability to raise revenue locally. The primary source of local revenue is generally property taxes, but there are legal limits on how much property tax revenue a city or town can raise compared to its tax base. These constraints represent a major barrier to creating affordable housing on the scale that is needed, especially housing that is affordable to households with very low incomes.

As a result, 19 communities have filed home rule petitions seeking state approval to assess a fee on large real estate transactions, a real estate transfer fee (RETF), to fund affordable housing activities. Revenue from the RETF would be directed to the local municipal affordable housing trust (MAHT), which is a public entity that manages funds to be invested in affordable housing. MAHTs and other local affordable housing programs are often under-resourced due to the limited options for raising municipal revenue. A real estate transfer fee is a powerful tool for resourcing these activities, enabling cities and towns to create and preserve more affordable housing in their communities.

What is a Real Estate Transfer Fee?

Transfer fees impose a fee on real estate sales at the time a property is sold. Massachusetts has long charged a flat-percentage deeds excise fee as part of property transfers, paid to county deed registries.⁷ Real estate transfer fees that focus on the sale of the highest price homes can raise critical revenue for housing investments while also making tax systems more equitable.⁸ A proposed local option transfer fee would allow cities and towns to assess a fee on high-end real estate sales. This revenue would be directed to MAHTs, and would allow them to scale up their affordable housing activities. Because these funds are controlled locally, real estate transfer fees give communities flexibility to tailor affordable housing activities to their needs.

What is a Municipal Affordable Housing Trust?

A Municipal Affordable Housing Trust (MAHT), also known as an affordable housing trust fund, is a public entity that works alongside local governments to fund affordable housing development and programs. As of 2023, 140 of the 351 municipalities across the Commonwealth have created a MAHT.⁹ A key function of MAHTs is to steward and invest local funds from the general municipal budget that are directed to affordable housing. In addition to developing affordable housing, MAHTs also sometimes fund programs that prevent homelessness and promote housing stability.

There is precedent for local funding of affordable housing using revenue generated by real estate. The most common funding sources for MAHTs are revenue from property tax surcharges enabled by the Community Preservation Act (CPA), revenue from inclusionary zoning policies or local development fees, and sometimes other municipal funding.¹⁰

Municipalities are not required to create a MAHT, and some are larger and more established than others. For example, the City of Cambridge has implemented the Cambridge Affordable Housing Trust, since 1989.¹¹ Other MAHTs, such as the trust funds in Arlington and Concord, were created within the past few years and are working to establish a stable funding base for their activities.

Local Governments Can Create Affordable Housing and Advance Housing Stability

MAHTs create and preserve affordable housing, and promote housing stability, through a range of different activities. These include: funding the development of new affordable housing, preserving affordability of existing housing, making public land available for affordable housing with a streamlined development process, supporting the maintenance and repair of existing affordable housing stock, and other activities tailored to local needs. Examples are provided below from municipalities that have voted themselves to establish a real estate transfer fee for supporting affordable housing, and have filed a home rule petition with the state to allow them to do so.

Funding the Development of Affordable Housing

Most affordable housing projects have multiple funding sources, and it is often challenging for affordable housing developers to obtain funding in time to act on project opportunities. Funding from a MAHT can allow a development to leverage other funding sources such as other government programs, loans that require capital, and private investment. Given this, a MAHT typically funds only part of the cost of an affordable housing development. However, this funding often fills financing gaps and can make the difference in whether a development is viable. Even if a development is viable without additional funding, funding from a MAHT can increase or extend its affordability by providing additional subsidies. Development funding is the most common activity for MAHTs, and is a primary activity for all 19 of the communities that have filed home rule petitions seeking to enact a real estate transfer fee.

Example: Falmouth
The Falmouth Affordable Housing Fund (FAHF) provided funding for 224 units of affordable housing across multiple developments between 2016-2024. 187 of these are affordable rental units and 37 are affordable homeownership units. The trust has provided approximately $16.6 million in funding across these developments, which is an average subsidy per unit of approximately $74,000 from the trust. This is approximately 15 percent of the typical cost of affordable housing development in Massachusetts: in 2023, community development corporations (CDCs), which focus on building affordable housing, reported an average development cost of $497,000 per unit.¹² This illustrates how affordable housing trusts can leverage their funds to create affordable housing in a way that is cost-effective for the town.¹³

However, the FAHF’s activities are limited by funding constraints. The FAHF receives an annual appropriation of town revenue from multiple sources, which amounted to approximately $3.4 million in 2023. In April 2024, when the Falmouth Town Meeting passed a home rule petition seeking a real estate transfer fee, the town estimated that all of the FAHF’s currently available funding (approximately $7.8 million) would soon be allocated to incoming requests.¹⁴

Example: Cambridge
The Cambridge Affordable Housing Trust (CAHT) offers a useful example of how MAHTs can produce affordable housing by leveraging other funding sources. Although Cambridge is different in many ways from other cities and towns, it is common for MAHTs across the Commonwealth to use this approach. A recent example is a building containing 106 affordable units. The development cost was approximately $850,000 per unit, due largely to the high cost of land and labor in Cambridge. The trust and city contributed approximately $170,000 per unit in loan funding, and the development accessed additional funding through federal programs, state programs, and other loans. Deeper levels of affordability require larger subsidies, and additional funding has enabled this development to make all of its units affordable to residents earning less than 30, 60, or 80 percent of the Area Median Income.¹⁵ The CAHT has produced more than 1,450 units of affordable housing during its lifetime.¹⁶

Preserving Affordability in Existing Housing

MAHT funding can help make housing permanently affordable or keep it affordable for longer. It is common for subsidized affordable housing to be income-restricted for a limited time, after which it reverts to being market-rate. For example, the federal Low Income Housing Tax Credit (LIHTC), which funds subsidized developments, requires a minimum affordability term of 30 years.¹⁷ Other programs, such as the state’s Housing Stabilization Fund, extend this term to 50 years.¹⁸ When affordability terms expire, it is often destabilizing for tenants and can result in displacement due to higher rents or a corporate acquisition of the property.

The expiration of affordable housing subsidies is an urgent issue, and substantial investment is needed to extend these subsidies to maintain the Commonwealth’s affordable housing stock. The Federal Reserve Bank of Boston has estimated that subsidies will expire at increasing rates in the coming years, and that they are being replaced at decreasing rates.¹⁹ MAHTs can turn existing market-rate housing into affordable housing by acquiring properties or paying subsidies to make them income-restricted. This is an especially important strategy in dense areas where there is not much undeveloped land. This sometimes allows for the housing to be made permanently affordable, particularly in the case of acquisitions. The City of Boston offers a promising example of a program focused on preserving affordable housing.

Example: Boston
The City of Boston’s Acquisition Opportunity Program (AOP) commits interest-free loan funding to affordable housing developers while they are looking for properties to buy, allowing them to be more competitive as buyers. In exchange for the loan, developers must keep tenants in place, keep the units available for 50 years, and set aside 40 percent of the units for low and middle-income households.²⁰ Because the AOP is a loan rather than a direct subsidy, it is a cost-effective way for the city to address the challenges affordable housing developers face. These developers are often competing with other investors with greater access to capital, and the AOP allows them to secure financing early in the process. The city recently reported that the AOP has led to the acquisition or preservation of more than 1,000 units of affordable housing since 2016, using approximately $97 million in city funding.²¹ In addition to the AOP, the Mayor’s Office of Housing preserved 106 units of affordable housing in Fiscal Year 2024, using approximately $1.9 million (approximately $17,925 per unit).22

Land Acquisition and Stewardship

As public entities, MAHTs can facilitate the use of public land for affordable housing creation by acquiring land or using existing publicly-owned property. The land itself is a significant subsidy, and the MAHT can also do initial due diligence work that makes the development process more predictable.²³ This predictability is highly valuable to developers of affordable housing, who often deal with long approval and review processes. Providing valuable land and streamlining the development process are both powerful tools for communities to make affordable developments financially viable.

Example: Chatham
The Chatham Affordable Housing Trust Fund has identified conveying and developing publicly owned property as a significant piece of its affordable housing strategy. This can include transferring public land at an affordable price for affordable housing development, as well as developing on public land directly.²⁴

Example: Amherst
The Amherst Affordable Housing Trust Fund is creating 68 units of permanently affordable housing across two sites, one of which is a former elementary school. The project was made possible through a combination of investments including a long-term lease of town land to the developer, a $200,000 funding award from the MAHT, and additional funding from Community Preservation Act (CPA) revenue and the American Rescue Plan Act (ARPA).²⁵

Example: Nantucket
The Nantucket Affordable Housing Trust has acquired land as part of creating multiple affordable developments, with the potential to produce up to 73 units of affordable housing in total.²⁶ This includes a combination of direct land acquisitions by the town, as well as grants to private developers to purchase land. These investments total approximately $9.7 million, or $132,876 per unit across the potential 73 units. The MAHT is also working to develop a parcel of town-owned land into affordable housing.²⁷

Maintaining and Improving Existing Affordable Housing

MAHTs provide funding that communities can use to maintain and improve their existing affordable housing stock. This funding can supplement state and federal subsidies, which have historically not kept up with maintenance and repair needs. MAHTs sometimes face limitations in this area because much of their funding comes from Community Preservation Act revenues, which can only be used to maintain housing that was originally built with Community Preservation Act funding.²⁸ This also highlights the importance of additional funding sources that allow MAHTs to be flexible.

Example: Arlington
The Town of Arlington invested $500,000 to rehabilitate an aging Arlington Housing Authority property where the condition of the building was creating a safety hazard.²⁹ While this project was eligible for Community Preservation Act funding, the Arlington Affordable Housing Trust has identified capital improvements as an area that requires significant additional resources as the town’s housing stock continues to age.³⁰

Programs Tailored to Local Needs

In addition to development-related activities, MAHTs can operate other programs based on their local needs. These include direct assistance programs that prevent homelessness and promote housing stability, as well as homebuyer assistance. Many cities and towns fund these programs separately, so this is a less common type of activity for MAHTs than affordable housing development, but some towns have been able to provide direct assistance with MAHT funding.

Example: Amherst
The Amherst Affordable Housing Trust Fund awarded $180,000 in funding to a local nonprofit, Craig’s Doors, to provide 15 rental vouchers for unhoused or housing-insecure people, for a period of one year ($12,000 per person). A voucher can be used to support one person for an entire year or be transferred to a new recipient if the current one no longer needs assistance. The MAHT award complemented a state contract with Craig’s Doors, aimed at addressing mental health and substance use issues by beginning with stable housing as an anchor for a range of supportive services.³¹

Example: Provincetown
In addition to affordable housing development, the Provincetown Affordable Housing Trust Fund has helped to fund and expand the town’s down payment assistance program for income-eligible homebuyers. The program provides an interest-free forgivable loan of up to $30,000 to buyers who earn less than 100 percent of the Area Median Income and purchase a deed-restricted unit.³² Deed restrictions typically consist of limits on resale price with the goal of keeping the property affordable in the future, as well as restrictions on the ability of a homeowner to rent out the property or use it as a short-term rental.

Barriers to Creating and Preserving Affordable Housing Locally

Development timelines are often unpredictable and require quick action in order to make an affordable housing development financially viable. Funding decisions often need to be made within 1-2 months in order to fill financing gaps, and MAHTs often have to be nimble to take advantage of cost-effective ways to acquire, preserve, and develop affordable housing. The ability to be fast and flexible is a key advantage of MAHTs as a vehicle for managing local funds.³³ When funding from existing sources is transferred to the trust, such as from Community Preservation Act (CPA) revenues or the municipal budget, it can meet this need to act quickly. However, these funds are not sufficient to meet the full level of need.

Additionally, there are typically restrictions on what can be funded with CPA revenues. For example, CPA revenues cannot be used for a restoration or rehabilitation project unless the project was originally acquired or created with CPA funds.³⁴ Since CPA revenue is often a major funding source for MAHTs, this restriction creates significant limits on how local funds can be used to rehabilitate or restore existing affordable housing.

A real estate transfer fee (RETF) would more adequately resource affordable housing trusts overall, and would also increase access to unrestricted funding for the purpose of creating and preserving affordable housing. The funding would go directly to the MAHT, ensuring that it has more funds readily available to act quickly on development opportunities.

Real Estate Transfer Fees Can Generate Thousands of Additional Affordable Housing Units and Advance Racial & Economic Equity

Real estate transfer fees can raise significant revenue at the local level. Based on 2022 sales data for the 19 communities that have filed home rule petitions seeking a transfer fee, a real estate transfer fee of 1 percent on the portion of transactions above $1 million would have generated approximately $213 million that year across those municipalities alone.³⁵ Depending on the average subsidy per unit, this revenue has the potential to create or preserve thousands of affordable housing units.

The table below compares this potential transfer fee revenue to a range of common subsidy levels in affordable housing development. For subsidies ranging from $100,000 to $300,000 per unit, a transfer fee has the potential to create or preserve approximately 700-2100 affordable units per year across the 19 communities that have filed home rule petitions. Subsidy levels may be higher for some activities (e.g., building from the ground up, allowing for greater affordability, or building in higher-cost areas), and lower for others (e.g., preserving the affordability of an existing unit, or a rehabilitation project).

It is important to note that these estimates are only a fraction of the affordable housing that real estate transfer fees can generate across the state. If communities enact a higher rate, or apply the fee to the entire sale price, it would generate more revenue and support more affordable units. Additionally, as more of the Commonwealth’s 351 municipalities make use of transfer fees, their potential impact can be even greater.

With Municipal Affordable Housing Trusts, cities and towns have a tool that has proven effective in creating, acquiring, and preserving affordable housing. However, the level of need is much greater than the resources available, and the important work of MAHTs can be scaled up with additional revenue sources such as a local real estate transfer fee. Additionally, by allowing cities and towns to raise local revenue, transfer fees create flexibility to address local needs.

Transfer fees would also be a tool for economic and racial equity. Because proposed transfer fees would be assessed on high-value real estate, they would distribute economic gains from those who have most benefited from real estate appreciation to those who have most acutely felt the negative impacts of the housing affordability and displacement crises.³⁶ This makes them a potent tool not only for economic equity, but for racial equity as well.

Endnotes

¹ National Low Income Housing Coalition, “A Brief Historical Overview of Affordable Rental Housing,” 2015.

² Commonwealth of Massachusetts Executive Office of Housing and Livable Communities, “A Home for Everyone: A Comprehensive Housing Plan for Massachusetts, 2025-2029,” accessed February 2025.

³ National Low Income Housing Coalition, “Housing Needs by State: Massachusetts,” accessed November 2024.

⁴ Federal Reserve Bank of St. Louis, “Housing Inventory: Median Listing Price in Massachusetts,” accessed January 2025.

⁵ U.S. Census Bureau, “Gross Rent as a Percentage of Household Income in the Past 12 Months, Table B25070,” American Community Survey 2021, 2015, and 2010 5-year estimates for Massachusetts, accessed January 2025.

⁶ U.S. Census Bureau, “Demographic Characteristics for Occupied Housing Units, Table S2502,” American Community Survey 2023 5-year estimates for Massachusetts, accessed February 2025.

⁷ Massachusetts General Laws, Chapter 64D, Section 1.

⁸ Castaldi, M. “Taxing Very High-Value Home Sales Is an Equitable and Effective Strategy to Raise Revenue and Fund Affordable Housing,” Center on Budget and Policy Priorities, July 19, 2024.

⁹ Massachusetts Housing Partnership, “Municipal Affordable Housing Trust Fund Operations Manual,” 2023.

¹⁰ The Community Preservation Act allows communities to assess an additional property tax of up to 3% to fund investments in affordable housing, open space, recreation, and historic preservation. It is common for the housing activities to be conducted through Municipal Affordable Housing Trusts, funded with CPA revenue. Inclusionary zoning policies require developers to meet an affordable housing requirement as part of gaining approval for a market-rate development. Developers are typically allowed to choose between building a certain number of income-restricted units, or paying a fee to the city/town or to the MAHT, which is then used to fund affordable housing activities.

¹¹ City of Cambridge, “Cambridge Affordable Housing Trust,” accessed November 2024.

¹² Massachusetts Association of Community Development Corporations (MACDC), “GOALs Report Appendix Table: Real Estate Development – Housing Projects Completed in 2023,” accessed January 2025.

¹³ Town of Falmouth, “Projects Funded by the Falmouth Affordable Housing Fund,” accessed January 2025.

¹⁴ Town of Falmouth, “Fact Sheet in Support of Real Estate Transfer Fee,” presented at Falmouth Town Meeting in April, 2024.

¹⁵ City of Cambridge Housing Department, “Cambridge Affordable Housing Trust Overview,” City of Cambridge, July 10, 2024. Additional information on funding sources from City of Cambridge Community Development Department, “52 New Street – Permanent financing request,” January 27, 2022.

¹⁶ Cambridge Affordable Housing Trust, “Cambridge Affordable Housing Trust 30th Anniversary Report,” 2019.

¹⁷ Commonwealth of Massachusetts Executive Office of Housing and Livable Communities, “LIHTC Eligible Activities and Affordability Requirements,” accessed January 2025.

¹⁸ Commonwealth of Massachusetts Executive Office of Housing and Livable Communities, “Housing Stabilization Fund,” accessed January 2025.

¹⁹ Chiumenti, N. “The Growing Shortage of Affordable Housing for the Extremely Low Income in Massachusetts,” Federal Reserve Bank of Boston, 2019.

²⁰ City of Boston, “Acquisition Opportunity Program,” accessed January 2025.

²¹ City of Boston Mayor’s Office, “Mayor Wu Announces Affordable Housing Milestone with Acquisition and Restriction of 1,000 At Risk Housing Units,” January 7, 2025.

²² City of Boston Mayor’s Office of Housing, “Impact of a Transfer Fee on MOH Program Funding and Impact,” MassBudget information request, received on Feb. 10, 2025, on file with author.

²³ JM Goldson Community Preservation & Planning, “Town of Amherst Housing Trust Strategic Plan, FY 18-22,” accessed January 2025.

²⁴ Chatham Affordable Housing Trust Fund, “Chatham Affordable Housing Trust Fund Guidelines and Application Package,” accessed January 2025.

²⁵ Town of Amherst Affordable Housing Trust Fund, “Funded Homes and Initiatives,” accessed January 2025.

²⁶ Nantucket Affordable Housing Trust Fund, “Annual Town Meeting 2021: How Monies Have Been Spent to Date & What Is Still Needed,” accessed January 2025. Unit counts taken from project-specific pages for 31 Fairgrounds Road, 135/137 Orange Street, and 16 Vesper Lane.

²⁷ Town of Nantucket, “Request for Proposals for Affordable Housing Development, 7 Amelia Drive,” accessed January 2025.

²⁸ Community Preservation Coalition, “Allowable Uses for Community Preservation Act Projects,” accessed January 2025.

²⁹ Community Preservation Coalition, “CPA Projects – Detailed Report: Winslow Towers Building Envelope Project,” accessed January 2025.

³⁰ Arlington Affordable Housing Trust, “Five Year Action Plan (2022-2027),” 2022.

³¹ Amherst Affordable Housing Trust Fund, “Town of Amherst Affordable Housing Trust Fund meeting minutes from November 9, 2023,” November 9, 2023; and “Funded Homes and Initiatives,” accessed January 2025.

³² Town of Provincetown, “Housing Programs,” accessed January 2025.

³³ City of Cambridge Housing Department, “Cambridge Affordable Housing Trust Overview,” City of Cambridge, July 10, 2024; Conversations with Municipal Affordable Housing Trusts in Truro and Amherst.

³⁴ Community Preservation Coalition, “Is Our Project Allowable?” accessed February 2025.

³⁵ Massachusetts Association of Community Development Corporations (MACDC), “Transfer Fee-Eligible Transactions and Potential Revenues,” accessed January 2025. Exact revenue estimates will vary based on the terms of the transfer fee. This estimate is based on a 1 percent fee on the amount of the sale price that is above $1 million (e.g., a transaction of $1.5 million would pay a 1 percent fee on $500,000).

³⁶ Castaldi, M. “Taxing Very High-Value Home Sales Is an Equitable and Effective Strategy to Raise Revenue and Fund Affordable Housing,” Center on Budget and Policy Priorities, July 19, 2024.