How to Balance Profit and Responsible Real Estate Development

When a parcel of land goes up for sale in most cities, commercial real estate developers look at it through the lens of money: is there a building project here that could generate profit? But city planners have other considerations. What type of building would fit in with the neighborhood? Would it serve local goals of, say, expanding affordable housing? 

Finding that balance between maximizing profit and promoting civic development is critical for successful growth in cities, says Justin Hollander, A96, a professor in the Department of Urban and Environmental Policy and Planning. While students in his classes tend to focus on how real estate development should serve the community, he makes the point that it’s important to consider commercial needs, too.

In the new book Buildings for People: Responsible Real Estate Development and Planning, Hollander and co-author Nicole Stephens, AG22, detail those lessons with viewpoints from both sides of the real estate development process. 

The book was an outgrowth of a course Hollander offered on urban development in 2021. Stephens was a graduate student in the class, and for her master’s thesis, she developed case studies of successful private-public partnerships, as well as detailing larger historical themes on the topic. The case studies then helped round out chapters in the book focused on specific topics like financial analysis, site analysis and planning, and architecture and landscape architecture.

“I hope that people take away from the book that affordability and responsible real estate development require intentionality and partnerships,” says Stephens, who now works as a real estate planner for the Massachusetts Port Authority. “The developments I highlighted drew from many funding sources, both private and public, and none were developed in isolation. All included strong community input and local partnerships.” 

 

Here are some other takeaways from the book:

Finding the balance between profit and responsible development is key. “I think one of the challenges is when public goals are too expansive,” says Hollander. A municipality might decide it doesn’t have enough affordable housing, so it requires every new development of more than 10 units to set aside half of the units for affordable housing—meaning that the developer essentially needs to subsidize those affordable units. 

“But if the numbers don’t add up—if there’s no room for profit—the projects won’t happen, and no new affordable housing is developed,” he says. “Developers would just go to another city that doesn’t have those restrictions.”

Used responsibly, zoning laws can encourage responsible development. While zoning laws have been used in the past to exclude and discriminate, through responsible use, communities can include requirements for developers “that don’t necessarily interfere with a project being profitable, but do provide some social benefits, whether it’s around affordable housing or community amenities or transportation,” Hollander says.

He cites a real estate development, Culdesac Tempe, near the University of Arizona that created a self-contained community where cars are prohibited. The residents rely on public transit—there’s a train stop at the edge of the development, so they are not contributing to traffic congestion and air pollution. “I think the answer is not to throw away zoning, but to rethink how it can be used as a tool for inclusion and a tool for advancing justice and a tool for addressing community needs.”

Recognize that the building stock needs to be regularly overhauled. A typical building usually lasts about 30 years, and then it has to be completely rebuilt, Hollander says. In a city with 100,000 people, that means tens of thousands of housing units need to have major rehabs, and “if the city is experiencing growth, they’re also going to want new development,” he says.

But without being incentivized by profit, “real estate companies won’t invest in their properties, and housing ends up becoming essentially substandard, because nobody’s fixing it up, and nobody’s building anything new. That’s a recipe for a cycle of decline.”

There are plenty of examples of responsible real estate development to inspire others. 

One is the Mosaic development in Boston, says Stephens. “It provided a significant number of affordable units and market-rate units. The market-rate units helped to subsidize the affordable units, enabling the development to be built with less funding from the city and state, which frees up funding for other affordable housing developments.”

Another is the Plaza Roberto Maestas development in Seattle, developed by a nonprofit, says Hollander. “I think what was meaningful here was that they really listened to the community,” he says. “They were able to make this project work financially because they partnered with the local government, and focused on a site near public transit. That was key, creating this civic gathering space that was really important.”

 

https://now.tufts.edu/2024/05/21/how-balance-profit-and-responsible-real-estate-development