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

2 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

3 Median Single Family Home Price

4 Home Prices Continued to Rise

5 Changes in Housing Supply YearTotal Units Permitted Single Family Units Units in 2-4 Unit Structures Units in 5+ Unit Structures ,846 8, , ,662 7, , ,342 7, , ,701 6, , ,520 6, , Change from ,701 (+23%) 6,087 (-5%) 1,033 (+11%) 4,581 (+95%)

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7 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

8 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.5100%71%23%.590%63%18%.7490%27%10% Source: Simulations based on Carlos DeSantis, “Fiscal Impact of New Housing Development” (Mass Executive Office of Administration & Finance) 10/28/03

9 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

10 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 re- zoning for enough new housing construction in the Commonwealth to meet current and projected housing needs

11 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.

12 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%.)

13 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-- $ 10, units -- $350, units -- $ 75,000 over 500 units -- $600, $200,000 (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)

14 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

15 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

16 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

17 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.

18 Total State Spending: Operating and Capital Budgets

19 Summary of New Units

20 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.

21 Program Costs Before Revenue Offsets

22 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.

23 Revenues and Revenue Offsets Net Program Costs

24 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

25 Appendix Notes: Underlying Assumptions  Greater Boston household growth for the decade is estimated at 10,300 per year (MAPC).  Average housing production from 2000 to 2002 was 8,300. (Housing Report Card)  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.

26 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  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.