In creating Chapters 40R and 40S, policymakers recognized that respecting local concerns in the pursuit of statewide goals was a more effective strategy than mandating or regulating behavior. While the jury is still out on how effective 40R and 40S will be, moving from regulation to incentives is a commendable step for housing policy in the Commonwealth.Housing policy - Massachusetts

Darcy Rollins

English

Research Papers in Economics

Housing has become increasingly unaf-
fordable for low and moderate income
households in Massachusetts, particularly
in the Boston metropolitan region. In
2004, The Greater Boston Affordable Housing
Report Card reported that there were only
27 communities in Boston’s Primary
Metropolitan Statistical Area in which a
median-priced single-family home would
be affordable to a family earning that com-
munity’s median household income. And,
in only one community, Milton, could a
typical first-time homebuyer who earned
80 percent of the town’s median income be
able to afford a house priced at 80 percent
of the median. Recent research by the
Rappaport Institute for Greater Boston
suggests that the high price of housing in
Massachusetts is driven in part by local
land use regulations. Massachusetts
recently passed two new laws—Chapters
40R and 40S—that provide financial
incentives to Massachusetts communities
to encourage new housing supply. Will
these be enough to overcome local resist-
ance to new housing? 
Land use regulations constrain the
supply of housing by either restricting the
number of units that can be built or
increasing the costs of construction. While
regulations often intend to advance local
interests, these local interests may or may
not mirror the general public interest. For
example, growth management regulations
can benefit everyone by minimizing the
costs associated with rapid development,
such as congestion and environmental
degradation. But other regulations may
work against broader public goals. For
instance, local zoning that prevents denser
or more affordable development addresses
the important local concern that new tax
revenues may not cover the cost of servic-
es—such as sewers, roads, and educa-
tion—required by new residents, but exac-
erbates the affordability problem.
Chapters 40R and 40S seek to address this
problem with incentives—or “carrots” —
for communities that build more afford-
able and market rate housing.  As Professor
Barry Bluestone of Northeastern Univer-
sity noted, in order to increase the supply
of housing, “We have to get the incentives
right for local communities, so that their
interests and the interest of the
Commonwealth align.”
Massachusetts first addressed local
regulatory barriers to affordable housing
development in 1969, when it passed
Chapter 40B. This law promotes the pub-
lic goal of increasing and dispersing the
supply of affordable housing by using a
stick approach—regulating a required
Chapters 40R and 40S 
provide financial incentives
to encourage new 
housing supply
Policy
Brief
06-1
New England Public Policy Center
at the Federal Reserve Bank of Boston
New England Public Policy Center
at the Federal Reserve Bank of Boston February 2006
An Overview of Chapters 40R and 40S:
Massachusetts’ Newest 
Housing Policies
by Darcy Rollins
federal reserve 
bank of boston
TM
New England Public 
Policy Center
Director
Robert Tannenwald
Deputy Director
Carrie Conaway
Staff
Heather Brome
Tom DeCoff
Brad Hershbein
Matthew Nagowski
Antoniya Owens
Teresa Ricoy
Darcy Rollins
Alicia Sasser
Bo Zhao
The New England Public Policy
Center is dedicated to enhancing
access to high-quality analysis on
economic and public policy issues
that affect the region.
For more information about the
New England Policy Center,
please visit:
www.bos.frb.org/economic/neppc/
The views expressed by the New
England Public Policy Center are
not necessarily those of the
Federal Reserve Bank of Boston or
the Federal Reserve System.
         2
amount of affordable housing. 40B compels
communities to host at least 10 percent
affordable housing. Under the law, eligible
developments featuring mixed-income and
affordable housing can be granted compre-
hensive permits by a Local Zoning Boards of
Appeals (ZBA). Comprehensive permits
streamline and consolidate the typically
lengthy local permitting process. For a devel-
opment to be eligible, it must use govern-
ment housing programs or funds approved
under 40B, reserve a percentage of housing
for low-income households, and ensure that
at least a quarter of the planned units
include long-term affordability restrictions.
If a qualified development is denied a com-
prehensive permit by a ZBA in a community
with less than 10 percent of its housing
affordable, the developer may appeal the
decision to the state Housing Appeals
Committee (HAC). The HAC reviews the
case, weighing regional need for affordable
housing against stringent interpretations of
the development’s potential impact on pub-
lic health, safety, and welfare. 
Communities with more than 10 percent
of its housing affordable may still grant appli-
cations for comprehensive permits, but the
local decision may not be appealed to the
HAC. Where a community stands relative to
the 10 percent standard is tracked in the
Department of Housing and Community
Development (DHCD)’s Subsidized Housing
Inventory (SHI). Which units are “affordable”
and count towards the 10 percent standard is
defined not by their price relative to local or
state median incomes but by use of the
state, federal, and quasi-governmental pro-
grams approved under 40B. Communities
have expressed concern about what is and is
not counted towards the 10 percent stan-
dard, prompting revisions of the definition of
eligibility in recent years.  
Because it establishes requirements that
can be counter to local interests, 40B has
consistently met with local resistance. Local
officials have claimed that the comprehen-
sive permit granted under 40B limits their
ability to conduct effective planning consis-
tent with sustainable development princi-
ples. Another issue is that 40B forces munic-
ipalities to accept developments out of scale
with established community character. And
40B had no provisions to address growing
local concerns about the additional service
costs of new housing developments. 
Nonetheless, 40B has been the
Commonwealth’s most important affordable
housing production policy since its establish-
ment, especially in suburban areas. A recent
study by Northeastern’s Center for Urban
and Regional Policy found that 40B develop-
ments accounted for 60 percent of all new
affordable units in the state, and 80 percent
of those outside the city of Boston.
However, in part because of local resistance,
40B has not been able to significantly
increase the supply of affordable housing
throughout the Commonwealth. According
to the SHI, as of January 2006, affordable
units accounted for 10 percent or more of
the housing stock in only 47 of the state’s
351 communities.  
As problems with affordability continued
to mount in the Commonwealth, the
Romney administration changed the nature
of the housing debate by establishing new
policy priorities to promote smart growth. An
Office of Commonwealth Development was
established in 2003 to integrate the actions
of several state departments in the interest
of promoting smart growth in the state.
Smart growth refers to mixed-use develop-
ment concentrated around transportation
nodes and community centers. The state’s
new commitment to smart growth, com-
bined with the need for additional housing,
spurred the development of two new hous-
ing production policies: Chapters 40R and
40S. These laws aim to add enough new
housing within established growth areas to
moderate housing price inflation, so that
increases would be more in line with the
growth in family incomes. The architects of
the law believe that this goal can be accom-
plished with a relatively modest increase of
33,000 new market-rate and affordable hous-
ing units over the next 10 years.
Both laws provide the carrots of local
financial incentives, in contrast with 40B’s
stick of regulatory requirements. Chapter
40R provides financial incentives to commu-
The new laws promote state goals
while addressing community concerns
about the net costs of new housing 3
nities that establish a state-approved smart
growth zoning district (SGZD). Within the
zone, towns are required to allow for denser
residential development — eight houses per
acre for single family homes and at least 20
units per acre for condominiums and apart-
ment complexes. In addition, at least 20 per-
cent of the housing developed within a
SGZD must be affordable to households
making 80 percent of area median income.
Upon state approval of a SGZD, a municipal-
ity receives a one-time incentive payment
ranging from $10,000 to $600,000, depend-
ing on the number of total new housing units
planned. An additional “density bonus pay-
ment” of $3,000 per housing unit is dis-
bursed when a building permit is issued.
Chapter 40R also gives communities with
approved SGZDs priority for discretionary
funds from other state agencies.
Furthermore, mixed-use and affordable
housing is allowed as of right in the SGZD,
relieving the developer of the need to secure
multiple local permits or get approval for the
development at a public meeting. 
Communities worry that additional
housing created under 40R will result in
greater educational costs than what could be
recovered through the property and excise
taxes paid by those new households.
Previous research does not conclusively
show that new housing automatically
implies increased housing costs.  But an
examination by the Commonwealth
Housing Task Force found that in the 238
Massachusetts cities and towns not receiv-
ing state foundation aid for education, each
single-family home costing $550,000 or less
built in an SGZD would likely increase net
education costs by $5,000.  Net education
costs are equal to the total increase in edu-
cation costs per household minus any
increase in property tax and excise tax rev-
enues collected from the household.
Analysis found that  typical multi-family
developments resulted in net education
costs of $320 per unit for 43 percent of com-
munities in the Commonwealth. 
To address the potential impact on edu-
cation costs a companion law, Chapter 40S,
creates a Smart Growth School Cost
Reimbursement Fund to provide full reim-
bursement for any net new education costs
resulting from housing units built under
40R. Only net new municipal costs attrib-
uted to eligible children, defined as children
living in a SGZD and enrolled as of the prior
year in an elementary or high school, are cov-
ered under 40S. The Commonwealth
Housing Task Force estimates that, if the
full 33,000 new units were built, by the
tenth year the density bonuses would cost
the state $14 million annually and the school
cost supplement would be $35 million annu-
ally. Much of this cost is covered by a Smart
Growth Housing Trust Fund, capitalized
through the sale of surplus state land. 
Will Chapters 40R and 40S induce the
production of enough new housing units to
moderate the Commonwealth’s housing price
growth? It will be hard to know the answer;
there are signs that the regional housing mar-
ket is beginning to cool, so price growth may
The Commonwealth Housing Task Force
Formally established in 2002, The Commonwealth Housing Task
Force is an ad hoc group representing diverse constituencies with an
interest in addressing the housing affordability problem in Massachusetts.
Now heralded as a model of public and private collaboration and an
example of the power of uniting multiple stakeholders to solve complex
policy problems, the Task Force followed on the heels of a contentious
battle in the late 1990s between housing advocates and business leaders
over the passage of the Community Preservation Act (CPA) in Boston.
The CPA allows local communities the option of a local tax surcharge to
fund housing, recreation or conservation projects.
As the state’s affordability problem grew throughout the decade,the
formerly estranged constituencies decided that collaboration was need-
ed if there was to be any hope of developing policies that could amelio-
rate the problem.The two sides convened in late 2001 and eventually
expanded their membership to include the civic community,foundations,
the environmental community, organized labor, real estate developers,
elected and appointed officials at both the state and local levels, and
members of the higher education community. Staff support is provided
by the Boston Foundation and Northeastern University’s Center for
Urban and Regional Policy. Eventually, the Task Force released the two
reports that were the foundation of Chapters 40R and 40S, both of
which are discussed further within this policy brief. Since the passage of
the new laws, members of the Task Force have been involved in educat-
ing local officials about the incentives provided under them.4
slow independent of any new or existing poli-
cy.  If 40R and 40S have any influence at all, it
will depend critically on how many communi-
ties decide to participate.  It is still too early
to know how many will ultimately take advan-
tage of the policies, since regulations for 40R
were promulgated only in March 2005 and the
process of adopting new zoning regulations is
relatively slow. As of January 2005, DHCD
staff reported that only one municipality
(Chelsea) had submitted a 40R application,
though  more applications are expected soon.
Current grassroots efforts by the
Commonwealth Housing Task Force to edu-
cate more municipalities about the incentives
and intent of the new law could increase par-
ticipation rates. 
However, observers and analysts have
noted some potential obstacles to participa-
tion. The first is concern over loss of local
control—especially with respect to the 40R
provision that mixed-use and affordable
housing is allowed as of right. A 2004 report
by the Metropolitan Area Planning Council
indicated that local officials were “…critical
or completely opposed to giving the state a
degree of control over their zoning deci-
sions” and felt that “…the trade-off of giving
up control to the state was not worth the
money and possibly not worth any amount of
money.” While communities can pre-plan
the types of developments that they allow as
of right in SGZDs, the desire to maintain
local control over the entire development
process may be a significant stumbling block
for 40R.  Second, municipalities are not con-
vinced that the state is committed to fund-
ing the financial incentives of 40R and 40S
over the long term, given previous budget
cuts resulting from changing fiscal condi-
tions or policy priorities.  
In creating Chapters 40R and 40S, poli-
cymakers recognized that respecting local
concerns in the pursuit of statewide goals
was a more effective strategy than mandat-
ing or regulating behavior. While the jury is
still out on how effective 40R and 40S will
be, moving from regulation to incentives is a
commendable step for housing policy in the
Commonwealth. 
For further reading:
Building on Our Heritage: A Housing Strategy for Smart
Growth and Economic Development. Report and
Recommendations for the Commonwealth Housing
Task Force. The Center for Urban and Regional Policy,
Northeastern University, October 2003.
Chapter 40R School Cost Analysis and Proposed Smart
Growth School Cost Insurance Supplement. Report and
Recommendation for the Commonwealth Housing
Task Force. The Center for Urban and Regional Policy,
Northeastern University, May 2005.
Jonas, Michael. “House Rules.” CommonWealth
Magazine. January 2006.
Will 40R and 40S increase supply
enough to moderate housing 
price growth?

An overview of Chapters 40R and 40S: Massachusetts’ newest housing policies

http://www.bostonfed.org/economic/neppc/briefs/2006/briefs061.pdf

An overview of Chapters 40R and 40S: Massachusetts’ newest housing policies

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