What to do about Gentrification?
A commentary by William C. Shelton

  Homicidal graffiti aimed at affluent newcomers recently prompted public discussion of ‚ÄúGentrification.‚Äù  This is a genteel term for the displacement of long-term Somerville residents by newcomers who bid up housing prices beyond many working families‚Äô means. 

  In fact, this problem has been growing steadily for two decades.  Housing advocates who argued for a focused public response were largely ignored until injunctions to ‚ÄúKill a yuppie‚Äù began appearing on West Somerville walls.

  From 1982 to 1996, average rent on a two-bedroom Somerville apartment increased from $301 to $821.  In 1996, Massachusetts voters passed a ballot measure to abolish rent control.

   Many middle- or upper-income people had been living in rent-controlled Boston, Brookline, and Cambridge apartments.  They took the savings that they had thus accumulated and went looking for property to buy.  Somerville got a disproportionate share.  Today, our city‚Äôs home prices are close to double what they were in 1996, rising nine times faster than median income.

   Most of Somerville‚Äôs housing units are in owner-occupied two-and three-family homes, which are selling at inflated prices.  To service their mortgages, buyers jack up rents.  Inflated home prices increase property taxes, which are also passed on to renters.  Too often, young homebuyers move out of the city when their children reach school age, taking their inflated equity with them and accelerating the inflationary spiral.

  Much of what made Old Somerville special and livable has faded away.  The economic exile of families born and raised here is only one element.  Anger is a healthy reaction to these changes.  But when the conditions that provoke anger persist, and the angry have no means of changing those conditions, anger turns into hatred and depression.

  The mayor and certain aldermen have made electoral gains by quietly identifying themselves with Somerville old-timers, while reciting slogans without substance that are calculated to woo newcomers.  But they have done little to relieve Old Somerville‚Äôs real suffering.

  Regional forces driving the housing market are, admittedly, beyond local control.  The only way to ensure that some portion of Somerville‚Äôs housing remains affordable is to permanently remove that portion from the inflationary cycle.  There are three ways to do this. 

  Increased public housing is the least attractive.  Concentrating low-income families in mini-ghettoes is good for no one, and worst for those families.

   A second means is to increase the number of units owned by community-based nonprofits like the Somerville Community Corporation and kept permanently affordable through deed restrictions.  Even if these properties were initially purchased and leased at market prices, future inflation of incomes and housing costs would eventually make them affordable.

  The third means is limited-equity cooperatives.  Also by deed restriction, a co-op unit owner could only accumulate a fixed maximum in equity, say $5,000-to-$20,000.  They could deduct their mortgage interest from their income taxes‚Äîan enormous advantage ownership has over renting.  If and when they were ready to move elsewhere, sale of their unit would be restricted to buyers of modest means, and to a price that had only increased by the equity limit.

  Each of these means requires enough of an initial investment to finance the balance of a unit‚Äôs cost through affordable debt. The city‚Äôs Affordable Housing Trust Fund was set up to make such investments, but it‚Äôs broke.

  One way to recapitalize it could be linkage fees generated by development of Assembly Square as an office-based, transit-related urban district.  Instead, city officials have decreed that Assembly Square should be suburban big-box stores and housing units that will be unaffordable to most Somervillians.  This will produce about one-eighth the linkage fees that offices would, and it will not generate tax revenues substantial enough to relieve home owners‚Äô tax burden.

  There are two other effective ways that the city could recapitalize the Trust Fund.  The first would be a small tax on the capital gain realized by a house sale‚Äîsay 2%.   The burden on the seller would be minimal, particularly in light of the exorbitant gains these sales are producing as they worsen the inflationary spiral.

  The second would be an anti-speculation tax.  It would begin with a substantial tax rate‚Äîsay 20-50%‚Äîon the capital gain from the sale of a home that has been held by the seller for less than one year.  The rate would decrease each year the home is held, to zero, say 5 years.  If a job transfer, death of a spouse, or some other cause forced homeowners to sell, they would be exempted from the tax.

  Revenues generated by these two taxes would provide millions of dollars per year to make housing units permanently affordable.  Elected officials can show how much they really care about Old Somerville by their willingness to implement these policies.  All they need is a little bit of courage and a home rule petition.