Building on our Heritage The Massachusetts Chapter 40R

Housing Strategy

The Commonwealth Housing Task Force

The Center for Urban and Regional PolicyNortheastern University

Barry BluestoneEdward C. Carman

Eleanor White

Lincoln Land InstituteOctober 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

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$169$159

$152$146 $148 $150 $154

$161$168

$186

$210

$245

$273

$313

$343

$165 $168

$100

$150

$200

$250

$300

$350

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

(in

$th

ou

san

ds)

Median Single Family Home Price 1987-2003

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0.7%

-6.1%

-3.6%

4.1%

10.7%

12.8%

16.9%

11.4%

14.4%

3.0%

9.6%

4.6%

1.2%

1.6%

-4.3%

1.1%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

% C

han

ge

in M

edia

n S

ing

le F

amil

y H

om

e P

rice

Home Prices Continued to Rise

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Changes in Housing Supply

Year Total Units Permitted

Single Family Units

Units in 2-4 Unit

Structures

Units in 5+ Unit

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

Change from 2002

11,701

(+23%)

6,087

(-5%)

1,033

(+11%)

4,581

(+95%)

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Homeowner Vacancy Rates US v Boston PMSA

0.0%

0.5%

1.0%

1.5%

2.0%19

86

1988

1990

1992

1994

1996

1998

2000

2002

US Boston PMSA

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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

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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

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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

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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

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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.

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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%.)

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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-- $ 10,000 201-500 units -- $350,00021-100 units -- $ 75,000 over 500 units -- $600,000101-200 -- $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)

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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

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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

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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

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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.

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Summary of New Units

Estimated Future Affordable AffordableTotal Units Production Net Units Unitsin Districts minus Transferred to equals New and Within Outside Districts @

Districts Production includes Districts $50,000 / unit

2004 1 0 0 0 0 2002005 2 0 0 0 0 2702006 3 1,600 700 900 320 4402007 4 2,700 1,200 1,500 540 7202008 5 4,200 1,800 2,400 840 9702009 6 4,400 1,900 2,500 880 1,1502010 7 4,600 2,000 2,600 930 1,3202011 8 4,900 2,100 2,800 970 1,5002012 9 5,100 2,200 2,900 1,020 1,6802013 10 5,400 2,300 3,100 1,070 1,850

32,900 14,200 18,700 6,570 10,100

Total New Housing Produced 28,800 (Net new units, including affordable outside districts)

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Estimated Program CostsSmart 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.

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Program Costs Before Revenue Offsets

(ooo's)

Funding for Funding for TotalDensity Annual Implementation Affordability Affordability Estimated

Years Bonus Chapter 70 Funds Within Outside ProgramPayments Payments Districts Districts Costs

2004 1 0 0 5,000 0 10,000 15,0002005 2 11,400 0 5,000 0 13,600 30,0002006 3 12,200 3,300 5,000 8,000 22,000 50,5002007 4 16,100 9,500 4,000 13,800 36,200 79,6002008 5 11,200 17,200 4,000 21,600 48,400 102,4002009 6 11,800 25,300 4,000 22,600 57,400 121,1002010 7 12,400 33,800 4,000 23,800 66,200 140,2002011 8 13,000 42,700 4,000 25,000 75,000 159,7002012 9 13,700 52,100 4,000 26,200 83,800 179,8002013 10 13,300 62,000 4,000 27,500 92,500 199,300

$115,100 $245,900 $43,000 $168,500 $505,100 $1,077,600

Total program costs are before Revenues and Offsets

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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.

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Revenues and Revenue OffsetsNet Program Costs

(ooo's)

Revenues Revenues from Revenues Total Less Net As % from Economic From Estimated Estimated Program of State

Years Construction Growth Sale of Land Revenues Program Costs BudgetCosts

2004 1 0 0 15,000 15,000 15,000 0 0.0%2005 2 0 0 30,000 30,000 30,000 0 0.00%2006 3 9,400 1,400 35,000 45,800 50,500 4,700 0.02%2007 4 16,800 3,800 40,000 60,600 79,600 19,000 0.08%2008 5 23,500 7,400 42,000 72,900 102,400 29,500 0.12%2009 6 24,600 11,200 44,100 79,900 121,100 41,200 0.17%2010 7 25,900 15,100 46,300 87,300 140,200 52,900 0.22%2011 8 27,200 19,300 48,600 95,100 159,700 64,600 0.27%2012 9 28,500 23,700 51,100 103,300 179,800 76,500 0.32%2013 10 30,000 28,200 53,600 111,800 199,300 87,500 0.36%

$185,900 $110,100 $405,700 $701,700 $1,077,600 $375,900

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

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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

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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.

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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.