Building on our Heritage
The Massachusetts Chapter 40R
Housing Strategy
The Commonwealth Housing Task Force
The Center for Urban and Regional Policy
Northeastern University
Barry Bluestone
Edward C. Carman
Eleanor White
Lincoln Land Institute
October 19, 2004
The Current Massachusetts
Situation
 Corporations, educational institutions, medical
centers and non-profits have difficulty
attracting workers to Massachusetts,
compromising future economic growth
 Many of the state’s best young minds are
leaving for areas with more affordable housing
 The unique quality of life in New England is
threatened by accelerating sprawl
 Need to align local community interests with
the interests of the Commonwealth
2
Median Single Family Home Price 1987-2003
$343
$350
$313
$300
(in $thousands)
$273
$245
$250
$210
$200
$186
$165 $168 $169
$150
$159
$152
$154
$146 $148 $150
$161
$168
$100
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
3
Home Prices Continued to Rise
20.0%
% Change in Median Single Family Home Price
16.9%
15.0%
14.4%
12.8%
11.4%
10.7%
10.0%
9.6%
4.6%
5.0%
4.1%
1.6%
1.2%
0.7%
0.0%
3.0%
1.1%
-4.3%
-3.6%
-5.0%
-6.1%
-10.0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
4
Changes in Housing Supply
Year
Total Units
Permitted
Single
Family
Units
Units in 2-4
Units in
Unit
5+ Unit
Structures Structures
1998
10,846
8,639
574
1,633
1999
10,662
7,775
746
2,141
2000
10,342
7,102
701
2,539
2001
9,701
6,313
686
2,702
2002
9,520
6,408
764
2,348
2003
11,701
6,087
1,033
4,581
Change from
2002
(+23%)
(-5%)
(+11%)
5
(+95%)
Homeowner Vacancy Rates US v Boston PMSA
2.0%
1.5%
1.0%
0.5%
US
2002
2000
1998
1996
1994
1992
1990
1988
1986
0.0%
Boston PMSA
6
The Problem
 The shortfall in housing production results from
insufficient land zoned for the development of
apartments and single family homes on smaller
lots
 1,2 & even 3 acre zoning for single-family
housing; Housing zoned for seniors
 Cities and towns are reluctant to zone for
denser, more affordable housing because of
fear of greater congestion and added costs of
municipal services and schooling the children
of new residents not covered by added
property tax
7
School Cost Analysis: Percent of
Communities that can afford to build new
housing (N=243)
# of School-aged
children per
house
Percent of
Assessed Value
of New Houses
(1999)
% Communities
with surplus
revenue from
new housing – All
new tax dollars
go to schooling
% Communities
with surplus
revenue from
new housing –
New revenue
split between
schooling & other
local services
.5
100%
71%
23%
.5
90%
63%
18%
.74
90%
27%
10%
Source: Simulations based on Carlos DeSantis, “Fiscal Impact of New Housing
Development” (Mass Executive Office of Administration & Finance) 10/28/03
8
The Resolution – Chapter 40R

Enough land needs to be zoned in special Smart Growth
Overlay Zoning Districts so that the private sector can
efficiently increase production to meet the demand for new
housing – when and where it is needed

Communities should have capacity to plan for new housing
developments that meet community design standards

Communities should receive financial incentives from the state
to help induce them to permit more housing development and
defray added costs of new residents

Additional housing subsidies should be provided for affordable
housing for low and moderate income households
9
Conclusion
 Fears of congestion, lack of design planning,
and additional school costs are indeed serious
barriers to communities that might otherwise
be willing to permit the construction of higher
density housing
 Dealing with these barriers head-on is likely to
be the only effective way to incentivize rezoning for enough new housing construction in
the Commonwealth to meet current and
projected housing needs
10
Chapter 40R Smart Growth
Locations
 Smart Growth Overlay Zoning Districts in
three locations will be eligible for incentives:
1. Transit nodes/ Commuter Rail Stations.
2. Town centers and other areas of concentrated
development.
3. Underutilized industrial, commercial and
institutional properties.
11
Smart Growth Zoning Districts

Overlay zoning districts are currently allowed under state law.
Every community in the State may, but will not be required, to
participate. A participating community must have (or pass) a
comprehensive housing plan to be eligible for state incentives

Design standards set and enforced locally

Smart Growth Zoning Districts must have no age or other
restrictions on occupancy, and, at a minimum, provide for:





Mixed Use.
Single family development at 8 units per acre, and / or apartments at 20
units per acre, with flexibility for communities under 10,000 population.
Infill on non-conforming lots and accessory apartments in large homes.
20% of the units to be affordable at 80% median income.
Approval of Overlay Districts and monitoring by DHCD (A district
may not exceed 15% total land area of town; districts in the aggregate may not exceed
25%.)
12
Chapter 40R State Incentives

A new Smart Growth Housing Trust Fund is established; from it
the State will pay a one-time “zoning incentive payment” within
10 days of DHCD confirmation of approval of a Smart Growth
Zoning District:
up to 20 units-21-100 units -101-200
--
$ 10,000
$ 75,000
$200,000
201-500 units -- $350,000
over 500 units -- $600,000
(Ch. 40R requires repayment if no construction in 3 years)

One-time “Density Bonus Payment” of $3,000 for each new or
rehabbed housing units receiving a building permit, within 10
days of issuance of permit
(Continued)
13
Chapter 40R State Incentives (Con’t)

Special priority for State discretionary funds from Executive
Offices of Environmental Affairs, Transportation, DHCD and A&F
(schools, transportation, water, sewer, etc.)

CHTF had proposed that the State hold communities harmless
from additional school costs attributable to children in new
units in the Districts. Ch. 40R directs DHCD, in consultation
with the Depts of Education and Revenue to study this impact
and create a formula for identifying net new costs. CHTF has
offered to assist in this review.

Adding the School “Hold Harmless” Provision back into Chapter
40R is critical and should be considered by Massachusetts
Legislature in 2005
14
Link to 40B Reform
 Construction of housing within the new Smart Growth
Zoning Districts will count in the normal way toward the
Ch. 40B 10 percent goal
 Ch. 40R represents a way for communities to channel
and direct new development where they want to see it
and with local design requirements. Adequate
production within the districts may forestall consideration
of Ch. 40B outside the districts
15
Implementation Assistance
 Through MassHousing, $3 million has been made
available for technical assistance to cities and towns
interested in smart-growth development, and is
expected to be available for the work required to plan
and zone for Smart-Growth Zoning Districts
 DHCD will administer these funds and is beginning to
write regulations
16
Funding Strategy Components for
Affordability included in the CHTF Report

Maintain or increase the allocation for housing under the
Private Activity Bond Cap at the current level

Gradually increase the housing portion of the State Annual
Bond Cap from its current level of 9.1% to 15%

Gradually increase annual state outlays for housing by $120
million. In the next decade this would have add nearly $675
million for housing affordability. The FY05 budget included an
additional $2 million into the Affordable Housing Trust Fund

Sell surplus State property, with a priority for housing and
mixed use (where appropriate). The FY05 budget requires that
after the first $25 million in proceeds from surplus land sales,
the next $25 million will be deposited into the Smart Growth
Housing Trust Fund to fund Ch. 40R incentives to communities.
17
Summary of New Units
Total Units
in Districts
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
8
9
10
minus
0
0
1,600
2,700
4,200
4,400
4,600
4,900
5,100
5,400
32,900
Total New Housing Produced
Estimated Future
Production
Transferred to equals
Districts
0
0
700
1,200
1,800
1,900
2,000
2,100
2,200
2,300
14,200
Net
New
Production
0
0
900
1,500
2,400
2,500
2,600
2,800
2,900
3,100
18,700
28,800
and
includes
Affordable
Units
Within
Districts
0
0
320
540
840
880
930
970
1,020
1,070
6,570
Affordable
Units
Outside Districts @
$50,000 / unit
200
270
440
720
970
1,150
1,320
1,500
1,680
1,850
10,100
(Net new units, including affordable outside districts)
19
Estimated Program Costs
Smart Growth Zoning Districts
 Incentive and Density Bonus Payments for Smart Growth
Zoning Districts allowing 50,000 housing units are
projected to cost approximately $16 million per year
over ten years
 After 10 years in operation, the cumulative new state
school costs for 33,000 new housing units in Smart
Growth Zoning Districts at a “hold harmless” level would
be approximately $42 million per year
 The current Chapter 70 school reimbursement budget is
$3.0 billion. The cumulative costs after ten years would
equal only 1.4% of the current budget. It will be
significantly less in earlier years.
20
Program Costs Before Revenue
Offsets
(ooo's)
Years
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
8
9
10
Density
Bonus
Payments
Annual
Chapter 70
Payments
Implementation
Funds
Funding for
Affordability
Within
Districts
0
11,400
12,200
16,100
11,200
11,800
12,400
13,000
13,700
13,300
$115,100
0
0
3,300
9,500
17,200
25,300
33,800
42,700
52,100
62,000
$245,900
5,000
5,000
5,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
$43,000
0
0
8,000
13,800
21,600
22,600
23,800
25,000
26,200
27,500
$168,500
Funding for
Affordability
Outside
Districts
Total
Estimated
Program
Costs
10,000
13,600
22,000
36,200
48,400
57,400
66,200
75,000
83,800
92,500
$505,100
15,000
30,000
50,500
79,600
102,400
121,100
140,200
159,700
179,800
199,300
$1,077,600
Total program costs are before Revenues and Offsets
21
Proposed Revenue Sources
 Increased state revenues from income and sales taxes
on construction related wages and the purchase of
materials from 56% of the new units built are estimated
to average $27 million per year after the fifth year.
 Increased state revenues from economic expansion due
to increased housing availability are estimated to grow to
$28 million by the tenth year.
 Revenue from the sale of state land.
 New state appropriations.
22
Revenues and Revenue Offsets
Net Program Costs
(ooo's)
Revenues
Revenues from
from
Economic
Construction
Growth
Years
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
2
3
4
5
6
7
8
9
10
0
0
9,400
16,800
23,500
24,600
25,900
27,200
28,500
30,000
$185,900
0
0
1,400
3,800
7,400
11,200
15,100
19,300
23,700
28,200
$110,100
Revenues
From
Sale of Land
Total
Estimated
Revenues
Less
Estimated
Program
Costs
Net
Program
Costs
As %
of State
Budget
15,000
30,000
35,000
40,000
42,000
44,100
46,300
48,600
51,100
53,600
$405,700
15,000
30,000
45,800
60,600
72,900
79,900
87,300
95,100
103,300
111,800
$701,700
15,000
30,000
50,500
79,600
102,400
121,100
140,200
159,700
179,800
199,300
$1,077,600
0
0
4,700
19,000
29,500
41,200
52,900
64,600
76,500
87,500
$375,900
0.0%
0.00%
0.02%
0.08%
0.12%
0.17%
0.22%
0.27%
0.32%
0.36%
Net Cost - First 4 Years of Program (2004 - 2007) $23.6 million
This amount is less than half the Governor's $50 million proposed housing Initiative.
Annual State Budget, 2003, estimated:
$24 billion
23
Anticipated Results
 Substantial amounts of land zoned, as-of-right, for
single family and apartment development, in Smart
Growth locations,
 33,000 new housing units in Smart Growth Zoning
Districts,
 Additional State funds for affordability
will significantly improve basic housing conditions and
moderate housing price increases in the Commonwealth
24
Appendix
Notes: Underlying Assumptions

Greater Boston household growth for the decade is estimated at 10,300 per year
.

Average housing production from 2000 to 2002 was 8,300.

The annual goal for incremental, new production equals the difference between the
two, or 1,960 units.

The current soft economy has led to increased vacancy rates for both single family and
multifamily housing. Rent decreases have been experienced; home price increases
have been moderating – and held up largely by low interest rates.

In spite of this moderation, housing in Massachusetts is not currently affordable for
61% of renters.

Further, when the economy regains its vigor, excessive housing price inflation will
resume unless there is net new production to absorb the increased household demand
(just as in the late 90s).

This affords the Commonwealth several years to ramp up the increased production in
order to moderate future price increases.
(MAPC)
(Housing Report Card)
25
Notes: Additional Assumptions

The amount of estimated production in Smart Growth Zoning Districts has been
increased to include housing that would have been built even if there were no Chapter
40R Program (“Transfer Units”): 30% for Single Family, and 50% for Multifamily.

Transfer Units represent production that takes place in Smart Growth Locations (i.e. the
new districts) instead of in locations that contribute to Sprawl (and are estimated to
equal 44% of total units within Districts).

Single Family homes are assumed to make up 40% of the total; Multifamily - 60%.

Production outside Greater Boston has been assumed to equal an additional 20%.

Using these assumptions, Baseline Production, Statewide, is 4,200 units within Overlay
Zoning Districts.
(1,832 = Transfer Units; 2,378 = new production units).

Baseline production is assumed to be reached in 2008.

For the purpose of estimated Density Bonus payments, it has been assumed that three
units must be zoned as of right for each unit that is to be built in the succeeding year.

Revenue estimates for construction and economic growth have been adjusted to
exclude Transfer Units.
26