Housing USA: Massachusetts’ Smart Growth Incentive

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5 min read

In recent years, the local political obstacles to adding dense housing are thought by analysts to be overcome with state policy. And often, these policies are “stick”–like in nature: Oregon, in 2019, passed a bill to outlaw single-family zoning in most parts of the state. Legislators in Virginia, California and Maryland have since proposed similar bills. But the “carrot” approach, which involves dangling financial incentives to cities that loosen zoning voluntarily, is also possible. One example is Massachusetts’ Smart Growth Chapter 40R program, which pays municipalities to write dense overlay districts. It’s spurred some quality housing production statewide, including a notable recent historic renovation project in the Boston suburb of Reading.

The 40R law was passed in 2004 and is administered by the state’s Department of Housing and Community Development. The program, according to the state website, “Encourages cities and towns to establish new overlay zoning districts to promote housing production and, more generally, smart growth development.”

Smart growth districts can be in areas near transit stations (rapid transit, commuter rail, bus and ferry), or near areas of concentrated development, such as city, town and village centers. The districts, which in most cases cannot exceed 15 percent of a municipalities’ total land area, must establish denser zoning than what is presently allowed by right – meaning 40R is an “upzoning.” The minimum density is eight DUA for single-family homes; 12 DUA for two- and three-family buildings; and 20 DUA for multifamily buildings. Zoning districts under 40R still allow local design review, and mandate that new buildings must fit existing architectural character. Twenty percent of housing in 40R districts must be affordable to those earning 80 percent or less of area median income

The program has four separate incentives. First, the “zoning incentive payments” is based on the number of new units the city allows in the overlay above the previous zoning. It is $10,000 for up to 20 units, $75,000 for 21 to 100 units, $200,000 for 101 to 200 units, $350,000 for 201 to 500 units, and $600,000 for 501 or more units. Second is the “bonus payment,” which is additive to this, and gives the municipality $3,000 for every permit actually issued. Third is 40S, a spinoff to the law that reimburses municipalities for the education costs of this population growth. It “is equal to the cost of educating students living in new housing in a smart growth district minus the percentage of new revenues from the district that would otherwise be [sic] devoted to educational costs.” And fourth, municipalities with 40R districts are likelier to receive discretionary funds from some of the state’s other executive offices.

This means that merely for allowing 500 transit-oriented development units—aka a few mid-rise projects—localities can receive millions of dollars from the state. The money can be used on infrastructure, as to prevent the growth from overwhelming existing services.

This is why many Massachusetts cities have taken advantage of 40R. A 2018 update report found 37 of the state’s 351 municipalities have created 42 of these districts. Over 15,000 units have been zoned for; 3,500 homes have been built; and interestingly enough, almost half of them have been affordable. The projects tend to go in older cities and leverage Historic Tax Credits and other alternate state and federal financing methods. The districts have generally gone in Massachusetts’ more urbanized east side (namely in and around Boston), although there’s a cluster north of Springfield. Some notable historic projects include the Loft Five50 in Lawrence, the Chestnut Park Apartments in Holyoke and the Station Lofts in Brockton.

Another one is the 20-24 Gould Street project. This is a four-story, 55-unit, mixed-use historic preservation building in downtown Reading, MA. The project has 25 percent affordable units, LEED certification and ground-level retail. It is a joint venture between Traggorth Companies—a Boston-based advisor and developer—and Civico Development.

Dan Hubbard, a partner at Traggorth, said a variety of financing mechanisms combined to spearhead 24 Gould Street. The 14 affordable units were made possible with $1.4 million from Department of Housing and Community Development’s Housing Stabilization Fund and MassHousing’s Affordable Housing Trust Fund. Traggorth also leveraged the Massachusetts Housing Partnership’s Green Building Certification Financing program, which reduces the interest rate on a permanent loan by 15 to 30 basis points if the developer gets higher-level green certification, such as LEED. But the 40R financing—which goes to the city, not the developers—still helped the project get key political support. For example, during a public hearing on 24 Gould Street, residents in Reading began using boilerplate NIMBY arguments. But a city staffer countered by stressing the financial windfall, in both local and state revenue, that the project would create.

“We have three options,” said Town Engineer Ryan Percival, in an exchange recounted by the local Daily Times Chronicle. “Option A is we raise taxes. Option B is we begin to cut back on social services, such as paying firefighters, teachers, filling in potholes, etc. Or, Option C is we approve these sorts of projects.”

24 Gould Street was eventually approved on this basis, both fitting Reading’s bottom line and the goals of 40R.

“Right where we are is on the street that connects the MBTA station to Main Street,” explains Hubbard. He says when 24 Gould Street residents walk two minutes in one direction, they’ll be downtown; and that when they walk two minutes in the other, they’ll be at the transit station, where they are a 25-minute ride from Boston. “So it’s a natural spot to want to have housing density.”

Of course, there are many other natural spots in Massachusetts and elsewhere around America to have housing density. And there are many interests trying to make this happen through state policy. If a “stick” can be used to pass legislation that legalizes density, cities will have no way to block it. But dangle the “carrot” of financial incentives, and cities may get more projects, like 24 Gould Street, anyway. Massachusetts Chapter 40R law is an example of this latter strategy.

Story Contact:
Dan Hubbard
Partner, Traggorth Company
[email protected]