Jenn Schultz
Massachusetts has a housing shortage crisis, and development does not come easy these days.
But, despite all of the very real hurdles facing housing developers – the cost of debt, the cost of construction labor and materials, increasingly more burdensome energy codes, out-of-date building code requirements and high affordability requirements – our state leadership has nevertheless created some potential pathways to success.
One step in the right direction that aligns with market realities is Massachusetts General Laws Chapter 40Y. Passed in 2022, 40Y is intended to make it easier, and cheaper, to build smaller homes on smaller lots: one version of the “missing middle.”
What Is Chapter 40Y?
40Y is a state statute that incentives municipalities – through direct payments – to zone for as-of-right small/starter homes.
Although site plan review is allowed, no discretionary permit is required. 40Y is intended to allow for additional density, often in cottage-community type campuses.
Simply put, municipalities that change their zoning to allow for small single-family homes on considerably smaller lot sizes than is ordinarily the case, will receive payments from the state.
Zoning for 40Y districts must meet three requirements:
First, a minimum of four units per acre, and a maximum house size of 1,850 square feet.
Second, at least 50 percent of the homes must have three or more bedrooms. Accessory dwelling units, no more than 600 square feet each, are allowed on any lot with a 40Y home, and do not count towards the 1,850 maximum square footage.
Third, each project that is more than 12 of these 40Y homes must be affordable below 110 percent of the area median income whether for ownership or rental. A municipality may incentivize, but may not require, additional affordability.
State payments to a municipality under 40Y include a “zoning incentive payment.” This payment ranges from $10,000 to $600,000, depending on the projected number of units of new construction relative to the amount that would have been produced otherwise under previous zoning.
Towns and cities also get a “density bonus payment” of $3,000 for each new home created in the 40Y district.
Mass. Needs Lots of Homes
Unfortunately, there are no approved 40Y districts as of July 2025, although Lincoln, Billerica, and Hanson have each expressed interest in the program.
While these municipalities should be applauded, there are 351 municipalities in Massachusetts, and we are currently estimated to need 222,000 new housing units by 2035 to keep pace with demand.
According to a 2024 study published by Construction Coverage, Massachusetts is sixth from the bottom in annual new housing production, averaging only 4.4 new units per 1,000 existing units, compared with the top 15 states that produce three to five times more units annually.
The type of housing units that 40Y zoning incentivizes is even more critical in Massachusetts with the housing shortage hitting the early workforce, and the downsizing baby boomer populations most acutely:
Workforce Housing Crisis: The increasing cost of housing – both rental and ownership – has been far outpacing wage growth in Massachusetts, making it increasingly difficult for young professionals to afford to live here. These unattainable costs are driving an outmigration of talent from Massachusetts, making the housing crisis also an economic development crisis.
Downsizing Dearth of Opportunities: From an income perspective, retired and retiring seniors are finding themselves in a crisis not too dissimilar from young professionals. This population is entering a lower fixed-income stage of life, and need to make smart long-term choices for their housing.
One unique element for the downsizing population is a common desire to stay in the same community they have long lived in, but without the carry of a large home/lot. This leads many downsizers to desire a small home in a managed community, often preferring rental to ownership; but with very few options in their preferred locations, these same populations tend to stay put for lack of a better alternative, which keeps their carrying costs higher than desirable while also keeping young families out which also can depress school enrollment.
High-Impact Potential on Cape Cod
There is an interesting case study for Cape Cod communities, especially those on the Upper Cape, that shows how 40Y could simultaneously serve both communities with the same more attainable housing product.
Decades of restrictive local zoning have prevented Falmouth and other Cape towns from building enough housing to support their workforce. The result is population decline, especially among younger residents, and an economic development crisis.
40Y zoning aligns with regional planning goals for housing, open space and water resource protection, rather than sprawling subdivisions.
With 40Y, the housing supply for a year-round workforce can be increased in a manner that complements small-town character, while also offering an obvious choice for downsizers and retirees who want to retire on the Cape in a walkable community attainable on a fixed income.
The bottom line? There is no legitimate downside for municipalities to pass 40Y districts.
Towns and cities will add money to their budgets from the state’s payments, and will set themselves up for longer term success by attracting and retaining both young professionals and downsizing retirees.
Jenn Schultz is a partner and leader of the nationwide real estate development team at Boston law firm Nixon Peabody.
