In her budget address to the City, Mayor Fuller outlined nine levers the City can pull to address our budget challenges, especially those related to funding schools. Of her nine points, only two were truly long-term solutions aimed at increasing revenue: a tax increase for everyone in the form of a Proposition 2½ override or building new housing and commercial development, which would generate new growth for the coffers.
When the issue of increasing development goes before the City Council, often the focus is on more commercial. Commercial property is taxed at a higher rate than residential property, so the theory is that more commercial development is better for supporting our budgetary needs.
And that is a sound theory. When the City commissioned an Economic Development Action Plan back in 2018, researchers reported that commercial property makes up just 8.7% of total real property value, and that it had been flat over the previous decade. That is, no one had invested in building new buildings during that time.
Unfortunately, today’s market doesn’t call for more commercial development. We missed that boat. Today’s developers focus on mixed-use and multi-family development.
Newton’s Lost Decade of Commercial Development
During the decade when our development remained flat, our neighbors, Needham and Waltham, both saw great investments in commercial development on properties bordering I-95. Commercial developers will tell you that the land right next to the highway is the most valuable. Here in Newton, the land that matches that potential is the parking lot at Riverside, and for the last 20 years, the city has tried to develop something there. But every proposal has ended up mired in special permits, local pushback, and City Council interference. So, while Needham and Waltham benefited from the commercial run-up, we didn’t.
The truth is, we make building very difficult, and developers took note. When consultants interviewed developers for the Action Plan, the developers called Newton “the City of ‘no’”. Commercial developers looking to invest in the Boston metro area often don’t even consider Newton.
Our outdated zoning code means that nearly everything requires a special permit, which adds a cumbersome, expensive, and unpredictable layer to development. The community also made its voice heard, and developers listened. The Washington Street Vision Plan commissioned by the City suggested zoning for larger commercial buildings in West Newton and along the desirable edge of the Mass Pike. But the community pushed back hard. That same pushback has also been a key feature of Village Center Zoning, and resulted in a referendum on the Northland property on Needham Street.
The New Reality in Commercial Real Estate
The economic development report found that pre-pandemic, 89% of Newton commuters went out of the city to work, a third of those into Boston, while 85% of people working in Newton came from places outside Newton. That commuting pattern typically happened five days a week. That’s not how things are today.
Commuting patterns are much different, according to a recent survey from WFH Research, with people working from home about a quarter of the time. Most offices experience bumps on Tuesday, Wednesday, and Thursday, but they never reach full capacity.
That explains why the commercial real estate market is spiraling down. A developer abandoned plans for labs on a property in Watertown, leaving it cheap enough for the City to purchase it. In downtown Boston, major office towers are selling for a fraction of their value just a few years ago, with most of the floors sitting vacant. Even those few leases that get signed are for less square footage than before, come with more benefits such as higher allowances for build-out, and are rarely for a full 10 years.
Today, investors avoid commercial and focus instead on multi-family residential and mixed-use projects. Even if a developer wanted to build a new commercial property in Newton, they are unlikely to secure the financing needed to build it.
The Key to Commercial Growth: Residential
The good news is that adding people adds business. As we’ve seen in Newtonville, housing adds commercial opportunities, with new shops and restaurants moving in.
New multi-family housing construction also increases a property’s value, and therefore generates additional revenue for the City. This is true even in situations where housing is being built on property previously zoned for commercial use, as that commercial property is often older or used for things that simply don’t generate the same dollars.
The increased density could open up new commercial doors for us, such as recreation. Natick recently converted large properties that had housed major retailers into entertainment venues. The City of Malden created a Gaming District where a series of entertainment businesses have clustered, and the Seaport is awash in places offering bowling, mini golf, and axe throwing.
The Way Forward
Newton’s current zoning codes and business permitting make this kind of activity difficult at best. But we can fix that. If we are to move in this direction, we must create code that is not only clear but also aligns with current business models and allows for this kind of building by right, without a special permit. We should also clearly articulate the permitting processes so that business owners know, upfront, what their investment would be, both in dollars and in time.
Newton should also adjust its zoning along major highways to encourage future commercial investment, allowing it as of right, without City Council approval. We don’t know if what we’re seeing is a permanent change in the market, but should the market return, we should be ready with zoning that lets development happen where it can bring the most value to the city.
We cannot go back in time and grab the commercial investment that went to our neighbors. Newton must exist in the market it has today, and that market is for mixed-use and multi-family housing. We can use that to our advantage and solve our budget issues. The only question is, will we take advantage of it or let it, once again, slip through our fingers?
Chuck Tanowitz is chair of Newton’s Economic Development Commission.
