Maximizing Affordability Without Minimizing the Effectiveness of Section 3A

An earlier version of this post was authored in partnership with Upzone Update and appeared on that website on April 19, 2024.

Aug. 12, 2024 - Local implementation of the MBTA Communities zoning law, or Section 3A, will enable the housing market to better serve a diversity of households by allowing for production of diverse housing types. It’s also an opportunity to address the affordability crisis by increasing the supply of housing, thus tamping down bidding wars on a scarce resource. One plain issue, though, is that the price of new market-rate housing is incredibly steep. Due to high construction and land costs, new market-rate housing in Massachusetts is unaffordable to almost 80% of Massachusetts renters. This means new construction does not directly create housing affordable to low-income households. This is where inclusionary zoning comes in.

Inclusionary zoning typically requires or incentivizes developers to deed-restrict a share of new housing units as affordable to households at certain income thresholds, set as a percent of area median income. Given high costs of construction, the rents or sale prices of the affordable units do not cover their share of the construction costs; the rents and sales of the market-rate units “cross-subsidize” the affordable units.

The balance of factors such as the price of market-rate units and the costs of construction thus determine the feasibility of an inclusionary policy: If municipalities require too much affordability, the rents from the market-rate units are not sufficient to support the lower rents from the affordable units. When this happens, development becomes financially infeasible and unattractive to for-profit developers and neither market-rate nor deed-restricted affordable units are built.

The state’s implementation guidelines for Section 3A zoning stipulate that policies requiring developers to designate up to 10 percent of housing units as affordable to households earning no more than 80 percent of area median income are automatically compliant. The region has a long history of projects remaining feasible under these requirements.

Many municipalities have adopted policies that require more than 10 percent affordable units or require deeper affordability by, for example, making units accessible to households earning less than 60 percent of area median income (AMI). These higher affordability requirements are most often motivated by a good-faith effort to better address the housing needs of low-income residents. However, because municipalities have a long, well-documented history of using zoning requirements to undermine development of multifamily housing, the state requires some additional documentation from municipalities that want to exceed its thresholds for affordability in their Section 3A district. These municipalities must undertake an Economic Feasibility Analysis (EFA) to demonstrate that new developments will be able to meet the policy requirements while remaining financially feasible, based on recent market conditions.

An EFA is similar to a development pro forma, a tool used by developers to determine whether a real estate project is likely to be profitable—financially feasible—by assessing dozens of locally specific real estate development variables, such as land prices and asking rents.

MAPC has completed EFAs for eight communities to date (see an example EFA) and is currently working on several more. Staff at MAPC have also interviewed dozens of real estate professionals, researched inclusionary policies, and studied mixed-income developments. Some key takeaways from these efforts include:

• Municipalities that wish to prioritize affordability have leeway to ask for greater affordability. At a density of 15 units per acre by right, most municipalities can ask for more than 10% at 80% AMI and MAPC encourages them to do so. If maximizing the number of affordable units is a priority, consider requiring 15% rather than 10%. If meeting the needs of local service workers is a priority, consider requiring affordability at 60% AMI rather than 80% AMI.
• One way municipalities can make deeper/wider inclusionary requirements more feasible is by reducing or eliminating on-site parking requirements. Parking spaces are expensive—as much as $40,000 per space for ground floor parking—and less parking can be a powerful cost offset that enables greater affordability. For example, in Salem’s 3A district, required parking is 1.0 spaces per unit rather than the 1.5 spaces per unit required elsewhere in the city. This reduction is a large part of why it is feasible for its inclusionary policy to require deeper affordability at 60 percent of area median income.
• To maximize affordability overall, allow more flexibility for small projects, which tend to be the most challenging to develop. This could mean allowing a scaled in-lieu fee or requiring slightly less affordability for projects under a certain size. These smaller projects—townhouses, triple-deckers, or garden apartments—are often exactly the type of modestly-scaled “missing middle” development that towns are interested in fostering. Tailoring an inclusionary policy based on project size ensures that the smallest projects remain feasible while maximizing the affordability in larger projects that are better able to accommodate greater affordability.
• The level of affordability that is feasible for a rental project may not be feasible for a homeownership project. Many successful policies target deeper affordability levels for rental projects (60 percent AMI or less) and higher affordability levels (80 percent AMI or more) for ownership projects.
• Suburban communities that have historically prioritized single family development often saw developers satisfy their inclusionary requirements through a payment in-lieu of on-site units because that is easier than building single family affordable units. However, applying inclusionary zoning in multifamily housing, where units are smaller and site costs can be spread across multiple units, is an easier lift than in single family subdivisions. Because of this, suburban municipalities should consider requiring on-site affordable units in their Section 3A district even if an in-lieu fee is permitted for single-family development elsewhere in town.
• Development in mandatory mixed-use districts is challenging in its own right, and maintaining feasibility for robust affordability requirements in districts where substantial ground floor commercial space is required can be particularly challenging.
• Individual municipalities will have competing priorities when defining their local zoning regulations: greater affordability, mandatory ground-floor mixed use, generation of income through linkage fees, or height limits of a certain threshold. However, even in the most robust housing markets, new development cannot provide every public benefit that a municipality might desire. For zoning to be successful, municipalities must focus on their highest priorities and be flexible elsewhere.

Municipal planners should note that feasibility analyses, though technical, are not overly complex and assistance is available. It's also important to stress that these feasibility studies can be iterative. If initial affordability requirements prove to be too restrictive, they can be easily adjusted within the Section 3A zoning bylaw or ordinance. Ideally, the feasibility studies will lead to a final Section 3A zone that meets state guidelines while advancing some level of affordability.

Technical Assistance Available For Municipalities:

If your municipality is interested in developing or revisiting an inclusionary policy and is located in the MAPC region, we can help you develop a policy that is the right fit for your municipality and ensure it can be applied to your 3A zoning. MAPC strongly encourages municipalities to seek the maximum level of affordability that is feasible, and is available to help municipalities undertake the documentation required to achieve this. If you have any questions, please don’t hesitate to contact Andrea Harris-Long, MAPC Housing Manager, at [email protected].

EOHLC defines how inclusionary zoning requirements interact with MBTA Communities zoning districts in Section 4(b) of its Section 3A Guidelines. EOHLC’s guidance on when an EFA is required and what must be included in an EFA can be found on its resources page.