despite recent downward pressure on home prices, the cost of housing remains a major concern for nearly two-thirds of Massachusetts residents, according to a poll released in February by the University of Massachusetts and the Citizens’ Housing and Planning Association. The same poll found that residents overwhelmingly support the construction of affordable housing-even in their own neighborhoods-and strongly favor smart-growth policies. Yet city and town officials express almost universal loathing for Chapter 40B, the state’s so-called anti-snob-zoning statute and its main tool for the promotion of affordable housing.
Chapter 40R, whose regulations were issued in March 2005, was supposed to help bridge these contradictory attitudes, by providing financial incentives for communities to allow denser and more affordable housing in town centers and in areas served by mass transit or existing underutilized infrastructure. However, it has received a less-than-enthusiastic response. We’ve heard municipal officials and planners say things like, “The one-time money is like a flea on an elephant’s bottom” or “40R is nothing but 40B with a check and a smiley face.”
Our direct involvement in the ongoing redevelopment of Cordage Park in Plymouth under 40R suggests that many of the criticisms are misplaced. The Cordage Park 40R district, approved by Plymouth town meeting voters in May 2006, includes approximately 60 acres of land on the site of a large mill complex where the Plymouth Cordage Company manufactured rope between 1824 and 1964. The district abuts Plymouth Harbor and includes the Plymouth station for the MBTA’s Old Colony Commuter Railroad, providing service to South Station in Boston. The 40R district allows 675 residential units and 600,000 square feet of commercial uses.
While cities and towns certainly have been slower to adopt 40R districts than originally expected, we believe that the experiences of early adopters such as Plymouth may create something of a tipping point in its favor, especially if the state steps up to the plate on funding.
EVERYONE’S A CRITIC
Chapter 40R grew out of the conviction that the Bay State’s high housing costs are the product of restrictive local land-use regulations that prevent dense development. Under the new law, municipalities are encouraged to create Smart Growth Overlay Districts, in which there are minimum density requirements of 20 housing units per acre for what is deemed multifamily housing; 12 units per acre for two- and three-unit buildings; and eight units per acre for single-family homes. Further, 20 percent of the housing units in the district must be affordable (to households whose income is less than 80 percent of “the areawide median income”). These smart-growth districts must be in areas of concentrated development (such as a city or town center) or near mass transit or existing underutilized infrastructure to avoid encroaching upon open space or creating sprawl. Projects proposed within a 40R district must either be allowed as-of-right or subject to limited municipal review, which must be completed within 120 days.
As a result of creating a 40R district, a community is entitled to receive an initial density bonus of $10,000 to $600,000, depending on the number of housing units that can be developed as-of-right. They also receive a bonus of $3,000 for each building permit issued for as-of-right residential units. A companion piece of legislation, Chapter 40S, insulates communities from increased school costs by providing state funding for new education costs that exceed the local property tax revenue generated from 40R development.
The ink had barely dried on Chapter 40R when numerous planners, municipal officials, and an assortment of other critics declared it dead on arrival. Their criticisms can be boiled down to four points.
Chapter 40R strips municipalities of local control of development through its as-of-right provisions. John Curtain, a city councilor from Haverhill, which approved an overlay district in December 2006, voted against the plan. He told us, “You lose complete control when you declare 40R. The scary part is that they [developers] have an absolute right to build whatever they want.”
While a perceived lack of control over development has been cited as a bar to 40R, no issue is more of a red herring. As one Plymouth planning board member remarked during 40R proceedings, the bylaw and design criteria developed for Cordage Park are more comprehensive than the conditions in the special permit for Plymouth’s Pine Hills—a 3,000-acre, planned community that includes more than 2,000 homes, in addition to golf courses and 1.3 million square feet of retail and commercial space.
The 40R regulations give municipalities considerable flexibility in fashioning smart-growth zoning. Of course, the zoning must provide for the requisite residential density and affordable components. Beyond that, cities and towns have significant latitude to develop standards that control the appearance, site design, and composition of uses. This is done through the development of specific design criteria and through the use of subdistricts to allow for variability in the mix of uses within the overall zoning district. In many ways, the design controls created for a 40R district are similar to, or even more comprehensive than, those typically employed during review of a project under a special permit procedure.
For example, the Cordage Park bylaw addresses: the type, location, mix, and size of uses; the subdivision of property and minimum requirements for access; setbacks and dimensional limitations; and open-space requirements. The Plymouth planning board and planning department also expended considerable time and energy on drafting 35 pages of design standards to achieve a collective vision for the development of the district. Those standards cover street furniture, architecture and landscape design, construction material, and the preservation of historic features and signage. In addition, they guarantee parks, walkways, and public waterfront access.
What’s more, the 40R process creates a distinctly different dynamic than that of a special-permit proceeding. In the latter case, there are at least three opposing agendas at play — the developer, the municipality, and opponents of the project. These agendas are usually staked out before the hearing, without the benefit of discussion and based upon incomplete information. Under these conditions, the opportunity for a more constructive sharing of interests and ideas is compromised or lost. At worst, the agenda is co-opted by opponents, driving the process in such a way that planning principles are sacrificed and the hearing is turned into a mere precursor to litigation. Once an appeal is filed by the opponents, the community loses control over the project while it is tied up in court.
The 40R process in which we participated in Plymouth was decidedly different from any of the countless special permitting processes in which either of us had been involved. Focusing on a result that everyone could accept created a dynamic that was more collaborative than most special permit proceedings. Early in the process, the participants placed primary value on understanding the various points of view and structuring a bylaw that allows for the realization of collective goals.
Through numerous meetings that included the property owners, representatives from the towns of Plymouth and Kingston, and other landowners in the two towns, a broad constituency was developed from the outset. Both informal and formal opportunities were created to allow the constituents to discuss their collective views for Cordage Park. The discussions with these various stakeholders were initiated early and continued through the development of the bylaw and design standards.
This process supported the adoption of the 40R zoning for Cordage because the bylaw and design standards reflected a common vision and provided similar control to that which would have been provided under the existing special permit process, while still guaranteeing a more expeditious local permitting process and reducing the development’s exposure to frivolous appeals. There was also broad consensus that the revitalization of Cordage Park was essential to the long-term success of the North Plymouth Village Center and the town of Plymouth as a whole.
The Cordage Park project had another advantage: The town of Plymouth received a $50,000 grant from the Massachusetts Department of Housing and Community Development that was used to hire Concord Square Development, a real estate and consulting company that was instrumental in the passage of Chapter 40R. Concord Square Development assisted the town with the 40R process and the development of the bylaw and design standards.
Chapters 40R and 40S financial incentives are not guaranteed to cities and towns, since the state has not set aside sufficient funding for them. Municipal officials worry that a financial downturn or other spending priorities might cause the Legislature to renege on its commitments. Even in the Cordage Park case, town decision makers made it clear that they did not have a high degree of confidence that the funding would actually be forthcoming. Therefore, the 40R proposal had to be acceptable on its own merits; if state funding materialized, that would be icing on the cake.
Skepticism about the availability of funds is likely warranted. Currently, 40S reimbursement is “subject to appropriation” and is distributed by the Department of Revenue along with other local aid. However, state Rep. Kevin Honan, co-chairman of the Joint Committee on Housing, has filed a bill this session that is intended to streamline the reimbursement process and increase the sources of funding for 40R and 40S. The bill provides for 40S payments to be made directly from the Smart Growth Housing Trust Fund, instead of being lumped into other local aid. The bill also proposes an innovative funding source for the trust fund: income taxes paid by residents of newly constructed or substantially renovated housing in approved 40R districts.
There is a contradiction within Chapter 40R between its smart-growth and affordable housing provisions. That is, affordable housing makes the most economic sense in outlying areas, where land costs are lower, but those areas are deemed off-limits because of the desire to avoid sprawl.
A significant impediment to the development of housing stock is the uncertainty of costs associated with the permitting process and with any appeal by an abutter or a competitor. Permitting costs can be several hundred thousand dollars, and if litigation is required for appeal, such costs can exceed $1 million, not to mention the costs of carrying the property. For prospective projects with low margins (especially those including affordable components), this uncertainty can be insurmountable, leading most developers to place the surer bet of a less-dense development with higher-profit-margin houses.
But in a 40R district, the cost and uncertainty of proceeding with a project are significantly reduced. A developer knows what performance standards must be met, and the time frame for approval is prescribed to 120 days. Just as important, the risk of appeal is substantially reduced. Would-be challengers to an approval must allege specific facts of how they are aggrieved by the approval and must post a bond sufficient to cover twice the sum of both the annual carrying costs of the property owner or applicant and the defendant’s attorney fees.
For Cordage Development, the developer of Cordage Park, the greater certainty, shorter time horizons, and reduced costs associated with a 40R process were instrumental in convincing the company to invest the upfront resources to help create the 40R district. The smart-growth elements of 40R—namely, higher density development located near transit and existing infrastructure—also are important for meeting the levels of affordable housing (up to 25 percent of the units in a project) required by the law. Developers generally break even or perhaps even lose some money on the construction of the affordable units. This loss can be offset only by the value of the market units and the increased densities allowed under 40R.
There are limits to how far greater densities can compensate for the development of additional affordable units. The mere allowance of more market-rate units does not translate, pro rata, into more money to create additional affordable units; too much density can lead to reduced margins on market-rate units and, thus, diminishing returns overall. Cities and towns considering densities greater than those required by 40R should take into account whether that level of density can be supported by local market conditions.
At Cordage Park, the district bylaw does not require densities greater than those mandated by 40R, and Plymouth’s conventional zoning already requires 10 percent of the units to be affordable. The 40R density was appropriate for Cordage Park, and the affordable housing increase from 10 percent to 20 percent was acceptable to the property owners in return for the greater flexibility and certainty provided by 40R and the district bylaw.
Projects being developed under Chapter 40R were already in the works and, for the most part, already conformed to the law’s criteria. The goal of 40R is to effect changes in land use, but it is not clear that municipalities are shifting their thinking, since most of the impetus behind proposed and approved 40R districts is from developers.
In the case of Cordage Park, it was the developer who first proposed a mixed-use plan, but that plan concentrated on commercial use rather than residences. The creation of Plymouth’s 40R district influenced the developer to include higher-density housing than was included in original plan.
It comes as no surprise that the first of the approved 40R projects have been largely initiated by developers. The incentive payments offer some enticements to municipalities to adopt 40R districts but not enough to tip the balance away from deeply ingrained biases favoring less dense development. Accordingly, developers will likely remain the precipitating agents for most 40R development in the near term.
Moreover, for some smaller towns, partnering with a large land owner within a proposed 40R district may be a necessity because of the town’s lack of resources. Municipal planning departments are notoriously understaffed, and for some towns, without additional assistance and resources, adoption of a 40R district may be well beyond their means.
WHERE DO WE GO FROM HERE?
Currently, 40R districts have been approved in 10 communities, and eight more are seeking or have received letters of eligibility from the Department of Housing and Community Development. Together, these districts would allow for a total of 6,118 units of housing, of which 1,223 would be affordable units. In addition, seven communities are actively seeking 40R eligibility, and 26 other communities are expressing interest in the concept. Irrespective of who is initiating 40R districts, or whether some variation of these projects would have gone forward without 40R, affordable units are being created. None of these affordable units would likely have been included had these projects proceeded under the underlying zoning.
As 40R projects reach maturity and municipalities are able to learn from the experiences (and presumably some mistakes) of the early adopters, we expect that more cities and towns will seek the competitive advantages afforded by creating Smart Growth Overlay Districts. We expect that towns like Plymouth will be seen as pioneers that blazed a new trail of affordable housing production.
Is 40R going to completely solve the Commonwealth’s housing dilemma? Certainly not by itself. In a home-rule state, there are limits to how much state government can change local zoning policies. However, it does provide municipalities with an alternative to 40B, in which the municipality truly does lose control over projects. And signs are pointing to progress toward achieving 31,000 new housing units in Massachusetts, a goal set in 2005 by the Commonwealth Housing Task Force.
Is there more that can be done? Absolutely. The irony is that although the state has been 40R’s cheerleader and municipal officials have been reluctant to jump on the bandwagon, most of the solutions for improving 40R must be undertaken by state government.
Most important, municipalities must have confidence that their budgets will not be further stressed by increased school costs resulting from high-density development projects. Continuing uncertainty about whether the state will meet its funding obligations under 40R and 40S remains the most important obstacle to more widespread adoption of 40R.
Further, the Commonwealth should be working with municipal leaders to provide the resources needed to accommodate denser development, such as improved infrastructure, parking facilities (especially for downtown areas), and more intermodal transportation. This will also require support from the MBTA, since mass transit is a central component of 40R principles.
Finally, there is concern that the high densities mandated by 40R—the very end the state is trying to attain—will trigger a whole host of state review and permitting processes. Local decision makers and developers are concerned that the expedited local process will be nullified by state delays. We must continue the progress already made to streamline the permitting process by including a balanced application of the state regulatory programs, including the Massachusetts Environmental Policy Act (MEPA), the Massachusetts Public Waterfront Act (Chapter 91), and the state’s Endangered Species Act.
Despite some remaining uncertainties, Plymouth’s Cordage Park provides a good example of how smart growth and housing production can work. In 40R the state has equipped local communities with a powerful planning and development tool, committed financial resources, and provided an alternative to the dreaded Chapter 40B. The new law is not a panacea, but neither is it the Pandora’s box that some municipal officials have portrayed it to be.
The open question is what actions the state will take to resolve the remaining 40R dilemmas. On that the jury is still out. The future of the Commonwealth depends on our ability to solve the interrelated challenges of high housing costs and population decline. Chapter 40R deserves the opportunity to be part of that long-range solution.
Michael E. Scott is a partner in the Real Estate and Finance Department and a member of the Land Use practice group of the law firm of Nutter McClennen & Fish LLP. He was the lead counsel for Cordage Development in the negotiations over the 40R district in Plymouth. Lee Hartmann is director of planning and development for the town of Plymouth.