On today's show we're talking about one of the quietest ways a deal gets killed. Not a rate move, not a cost overrun. A city council vote you assumed would never happen.
Let's start with the constitutional plumbing, because it explains everything that follows.
In the United States, municipalities are creatures of the state. They have no inherent sovereignty. Their zoning power, their taxing power, their permitting authority, all of it is delegated from above. Most states follow some version of Dillon's Rule, which says a city can do only what the state has expressly authorized it to do.
Now, if you stop reading there, you would conclude something very reasonable and very wrong. You would conclude that when a state or the federal government creates a housing incentive, it flows downhill automatically. The state says multifamily is permitted near transit, so multifamily is permitted near transit. The state creates a property tax exemption for workforce housing, so the exemption exists.
That is not how it works. And I see investors underwrite as though it is.
Here's the thing. The fact that a city gets its power from the state doesn't mean the city is obedient.
Let me give you real examples.
Massachusetts passed the MBTA Communities Act. It requires 177 municipalities in the transit service area to zone at least one district for multifamily as of right. This is a mandate. Not a suggestion. The town of Milton hired a consultant, filed an action plan, and adopted the overlay district in December of 2023. Two months later the voters overturned it by referendum. The Attorney General sued. The Supreme Judicial Court upheld the law. And five years after passage, in January of 2026, the AG had to sue another nine towns for continued noncompliance.
So even a hard mandate with an enforcement mechanism took five years and multiple lawsuits. If your pro forma assumed as-of-right entitlement in one of those towns in year one, you were carrying a multi-year hole.
Florida' Live Local Act created a seventy-five percent property tax exemption for units between 80%-120% of AMI. Local taxing authorities were allowed to opt out, and thirty-four of the forty-nine eligible counties did exactly that. Their reasoning was straightforward. The state gets the policy win, the county writes the cheque. Because the exemption generally applies only after completion, lenders were discounting it at underwriting. So even where the incentive survived, it didn't reliably show up in the capital stack.
Colorado is my favourite case, because it's the trap that looks like a win. Proposition 123 sent about three hundred and fifty million dollars a year at affordable housing. More than two hundred jurisdictions opted in, covering over ninety percent of the state's population. Looks like near-universal adoption. But the piece that actually matters to a developer is the ninety-day fast-track approval commitment, and as of early 2025 roughly five jurisdictions had implemented one. Opting in and building the machinery were two different votes, years apart.
-------------
**Real Estate Espresso Podcast:**
Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)
iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)
Website: [www.victorjm.com](http://www.victorjm.com)
LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)
YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)
Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)
Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)
**Y Street Capital:**
Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)
Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)
Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)