This article appeared in The American College of Real Estate Lawyers Newsletter, August 2005.

Overview
Through the efforts of a coalition of housing advocates and proponents of “smart growth” development, Massachusetts has adopted a novel legislative approach designed to encourage denser housing production and mixed-use development at sites with infrastructure and to avoid sprawl.  While zoning and land use laws are typically state-specific (and often locally specific), practitioners in other states may find that some of the techniques and ideas embodied in the Massachusetts approach described in this article may be adaptable to addressing these same issues in their respective jurisdictions.

Chapter 40R of the Massachusetts General Laws, Smart Growth Zoning and Housing Production (“Chapter 40R”), took effect on July 1, 2004, thereby ranking Massachusetts among the states that have passed legislation for the purpose of encouraging smart growth.  Regulations under Chapter 40R were issued on March 25, 2005 at 760 CMR 59.00 (the “Regulations”)

Smart growth is a land use planning philosophy that advocates well-planned, centralized, high-density mixed-use development, emphasizing walkability and the use of mass transit and existing infrastructure.  Smart growth policy developed as an antidote to sprawl development, which is usually characterized by single-use zoning districts with low-density development segregated by use and almost entirely dependent on automobiles.

Mandatory Provisions
Chapter 40R empowers municipalities to apply to the Department of Housing and Community Development (“DHCD”) for approval to designate an area(s) within their boundaries as a Smart Growth Overlay District (a “40R District”).  As part of its application, a municipality must submit a copy of the proposed overlay zoning bylaw or ordinance for the 40R District, which must respect the requirements set forth in Chapter 40R, discussed below.  The municipality must also submit a comprehensive housing plan.  Once a municipality receives approval for its proposed 40R District, as evidenced by a Letter of Eligibility issued by DHCD, it must then submit the proposed 40R District to a vote of its constituents (whether directly or through a city council) in compliance with the procedures set forth under the Massachusetts Zoning Act (“Chapter 40A”).  Even after a municipality adopts a 40R District, DHCD continues to monitor the municipality’s compliance with the requirements of Chapter 40R on an annual basis.

One of the primary goals of smart growth planning is to improve land use efficiency with denser development and by the use of existing infrastructure and mass transit.  To this end, Section 6 of Chapter 40R requires that municipalities locate a 40R District either near a transit station, an area of concentrated development (e.g. a city or town center) or existing underutilized infrastructure.  The Regulations somewhat broadened the concept of an “Eligible Location” (see 760 CMR 59.04).  A 40R District may overlap with a district approved for district improvement financing and tax-increment financing zones.  Contrary to the underlying zoning of most municipalities, Chapter 40R also sets minimum (rather than maximum) required densities such that, within a 40R District, there must be a minimum of 20 units per acre for multi-family housing of more than 3 units per building, 12 units per acre for 2 and 3 unit buildings and 8 units per acre for single family homes.  

For Massachusetts legislators, smart growth and affordable housing are two topics that have become politically interrelated.  As a result, Chapter 40R requires that (1) for projects consisting of at least 12 housing units, 20% of those unit must be affordable, and (2) 20% of the total housing units in the 40R District must constitute affordable housing.  
 
Chapter 40R further requires that a 40R District allow for a mix of residential housing, and allows for housing for the elderly and persons with special needs.  Projects developed in a 40R District solely for the elderly, disabled or assisted living, must contain a minimum of 25% of affordable units.  For purposes of Chapter 40R, affordable housing units are those that are affordable to, and occupied by, individuals whose family income is less than 80% of the area-wide median income. 

Finally, Chapter 40R also caps the size of a 40R District based on its percentage of the municipality’s total land area.  Under Section 6, a single 40R District cannot exceed 15% of a municipality’s total land area and the aggregate area of all 40R Districts located in the municipality cannot exceed 25% of the municipality’s total land area. 

Permissive Provisions
In addition to the above requirements for a 40R District, Chapter 40R also contains certain permissive provisions.  Significantly, it permits municipalities to allow mixed-use development as-of-right within a 40R District.  Encouraging mixed-use development is key to creating a centralized walkable community; it allows for residential uses to be built on top of, and among, retail uses, thereby creating a “town center” feel.  Chapter 40R also allows for the modification of the dimensional requirements contained in the municipality’s underlying zoning.  Specifically, a 40R District may require minimal or no set-backs, minimum building heights, maximum parking ratios and/or structured parking and useable open space.  These types of controls are intended to promote a denser, more centralized and walkable community. 

Permitting Process To Offer Greater Certainty and To Be Less Subject to Appeal by Opponents
Chapter 40R sets out the process by which a municipality evaluates applications for proposed 40R District projects.  Initially, the municipality must designate an approving authority to review prospective projects.  Projects within a 40R District must either be allowed by right or by right subject to only limited plan review, which ensures that Chapter 40R’s requirements are respected.  In other words, projects within a 40R District are developable without the requirement of a special permit, variance, zoning amendment or other form of discretionary zoning relief.  The approving authority must provide notice of its decision regarding a proposed project within 120 days of the application’s submission; otherwise, the project is deemed approved.  Unless (1) a prospective project fails to meet the 40R District’s conditions and requirements, (2) the applicant fails to submit necessary information and fees, or (3) it is not possible adequately to mitigate significant adverse project impacts on nearby properties, the approving authority must approve a proposed 40R District project.  In the event that the approving authority rejects a project, it bears the burden of justifying its denial by substantial evidence in the record. 

To appeal the approval of a 40R District project, opponents have the burden of showing that the proposed project does not meet the requirements of Chapter 40R.  Furthermore, such a plaintiff is obligated to post a bond in an amount that is set, and deemed sufficient, by the court to cover twice the estimated sum of (1) the property owner’s carrying costs, and (2) the defendant’s attorney fees.  Any court that is authorized to hear normal zoning appeals under the Massachusetts Zoning Act (Chapter 40A) is authorized to hear appeals under Chapter 40R.  However, unlike the presumptions contained in Chapter 40A, in order to have the standing necessary to bring such an appeal, the plaintiff must allege specific facts to show that he is a person aggrieved by the decision to approve a proposed project.  The approving authority’s decision will be affirmed unless the court concludes that it abused its discretion in approving the project.  This standard of review is different from the de novo review for normal Massachusetts zoning appeals and is intended to make it more difficult for local decisions to be challenged.

Financial Incentives for Municipal Adoption
In view of these requirements, what motivation does a municipality have to designate a 40R District, especially given the potential for increased education costs related to the denser residential development? 

Chapter 40R seeks to provide the necessary motivation by means of two rounds of financial incentives.  These financial incentives are effectively density bonuses.  The municipality receives its first payment within 10 days of obtaining its Letter of Eligibility.  The amount of this payment is based upon the number of housing units allowed as-of-right under the 40R District zoning that are in excess of those that were previously allowed as of right by the underlying zoning.  Payments range from $10,000 (for up to 20 units of housing) to $600,000 (for 501 or more units of housing).  In addition, upon the issuance of building permits for each new (additional) as-of-right unit, the municipality receives a second density bonus of $3,000 per issued building permit.  If construction of the new as-of-right units does not begin within 3 years of the initial payment, however, the municipality is obligated to repay all amounts paid to it under Chapter 40R.
 
Pursuant to Section 9 of Chapter 40R, all density bonuses will be paid from the Smart Growth Housing Trust Fund (the “Trust Fund”).  The Trust Fund will be funded by the sale of surplus state properties to the extent that the proceeds of these sales exceed $25 million per year.  The Trust Fund may also receive appropriations from the General Fund.  
 
With respect to municipalities’ concerns regarding increased education costs connected to the denser residential development required by Chapter 40R, DHCD is legislatively required to submit a report to the legislature no later than July 1, 2006, analyzing whether or not the adoption of 40R Districts has resulted in additional net costs on local public school systems.  Chapter 40R does not obligate the State to make any additional payments to offset any such additional costs, although legislation has been filed to accomplish this result.

Experience to Date
At present, Chapter 40R remains unproven.  No Chapter 40R density bonus payments could be made prior to July 1, 2005.  The reaction among municipalities has been mixed.  Among other issues, municipalities have voiced concerns relating to (1) the additional costs that may be imposed on public school systems, (2) the 3-year timetable within which 40R District projects must break ground, (3) the loss of local regulatory power to deny or to condition projects via a special permit mechanism, and (4) concerns about the affordable housing component.  Many suburban cities and towns feel that the incentives do not outweigh the loss of local control on these issues.  Some older inner suburbs of Boston served by mass transit and other infrastructure, especially with a city form of government, have shown more interest in using this tool to attract residential or mixed use development.

There is also uncertainty with respect to whether this regulatory approach will fulfill one of the primary purposes of Chapter 40R, which is to encourage both smart growth and housing production.  As drafted, Chapter 40R strongly promotes dense residential development and infill development of areas located near mass transit and/or existing infrastructure; however, it does not require mixed-use development or the dimensional modifications necessary to create a town center atmosphere.

It remains to be seen whether Chapter 40R will actually generate smart growth development or whether, at most, it will lead principally to an increase in the production of densely-built affordable residential developments near transit stations in certain communities that are prepared to allow such developments effectively by right.  Some housing advocates believe that the Administration’s emphasis on smart growth development in the form of Chapter 40R is too narrow and is actually hurting the production of more housing, especially more affordable housing in less dense suburban and rural locations.  While they support housing in smart locations, they do not support it to the exclusion of housing in other locations as well.