In an effort to expand the supply of housing in Massachusetts, the state's legislature recently adopted Chapter 40R, a measure that grants municipalities financial rewards for adopting special zoning districts for the construction of multifamily housing and single-family housing on small lots.

Signed into law in June by Massachusetts Gov. Mitt Romney, Chapter 40R has often been described as "the carrot approach to expanding the supply of affordable housing," says Eleanor G. White, president of Citizens' Housing and Planning Association and co-author of a proposal that inspired the 40R legislation.
"Under state law, communities have always had the power to establish overlay zoning districts, but this gives them a real financial reason to do it."

To participate in the voluntary plan, municipalities agree to create special "smart-growth" zoning districts close to transportation nodes, town centers, or vacant retail and commercial sites where housing can be built on less costly lots. To be eligible for the financial benefits, municipalities must submit comprehensive plans outlining the housing they plan to build in the districts. The law requires that at least 20 percent of residential units in district projects with more than 12 units must be affordable, and provides mechanisms to ensure that at least 20 percent of the total residential units built in the districts are affordable.

Once a smart-growth district is approved by the state, a municipality becomes eligible for incentive payments based on the housing it plans to build in them. These payments range from $10,000 for 20 units or less to $600,000 for 501 or more units. If no construction begins in the district within three years of receipt of the incentive payment, the municipality must repay the state.

In addition to the incentive payments, communities with approved smart-growth districts receive bonus payments of $3,000 for each unit of new housing that receives a building permit, and they become eligible for favorable treatment when state discretionary funding is disbursed.

Chapter 40R was inspired by a proposal initiated by Ted Carman, president of the Concord Square Development Company, and refined and expanded by Ms. White and Barry Bluestone, director of Northeastern University's Center for Urban and Regional Policy. The measure was promoted last year by the Commonwealth Housing Task Force, a private ad hoc organization established to increase the supply of housing in Massachusetts.

"The task force identified the lack of land zoned for multifamily housing or single-family housing on small lots, rather than an absolute lack of land, as a major constraint upon the production of more housing," says Ms. White. "Houses built on small lots can be sold at reasonable prices because they're not bearing huge land costs."

Ms. White attributes the speedy passage of the legislation in part to the composition and efforts of the task force. "The Commonwealth Housing Task Force is an extraordinarily broad-based effort, which includes the business community, the real estate industry, the environmental community, labor unions, educational institutions, affordable-housing advocates, community-development corporations, and elected officials," says Ms. White.

A key to the measure's broad support in the legislature is "the priority the state will give to participating communities seeking discretionary state funding for things such as water and sewer, traffic control, and environmental cleanup," says Ms. White. "These are things that communities very much want and for which they'll receive priority if they enact 40R."

Ms. White notes that the Federal Home Loan Bank of Boston was one of the early supporters of the task force. "We owe a real debt of gratitude to David Parish [the former head of the Bank's housing department] and John Eller [the Bank's senior vice president / housing and community development] for their leadership in helping with this," she says.

In the coming months, the task force plans to work with the Bank to set up a series of forums hosted by member banks to publicize and educate communities on 40R and its benefits. "We've already had a lot of interest in 40R expressed by a number of cities and towns," says Ms. White. "I think that once the first districts are created, interest will grow as neighboring communities see the financial benefits."