Andrew Mikula

The MBTA Communities law has many benefits for Massachusetts municipalities. By requiring multifamily zoning in some suburban areas near transit stations, the law helps facilitate more environmentally friendly development while connecting residents to economic opportunities and more efficiently utilizing public infrastructure.  

But beyond these high-level benefits, the law, which is also known as Section 3A, also has an unsung value: It can help inform better zoning policies in general, particularly around income-restricted housing in private developments. 

By default, Section 3A regulations allow municipalities to require that 10 percent of new homes in MBTA Communities-compliant districts are income-restricted. A higher percentage is allowed if the municipality presents an economic feasibility study with their 3A district application demonstrating that development would typically still be financially viable at the higher percentage, up to 20 percent.  

These economic feasibility studies have substantially increased public knowledge of which affordable housing set-asides are and aren’t financially viable in private development. Thus, beyond the MBTA Communities zoning districts, it may be a good time for Greater Boston suburbs to re-examine and, if needed, reform inclusionary zoning.  

Policies Must Change with Market Conditions

Broadly speaking, inclusionary zoning refers to any policy that either requires or incentivizes some below-market-rate housing in otherwise market-rate residential developments. According to a national inclusionary zoning database, there are 233 local inclusionary zoning programs in Massachusetts in 141 different municipalities – largely because the database counts Chapter 40R districts and blanket mandates as different “programs”. However, as recently as 2019, more than a third of these programs (80) hadn’t produced a single unit of affordable housing.  

Recent research published by the Pioneer Institute suggests that inclusionary zoning is best suited to relatively affluent and expensive communities with a strong appetite for expanding the housing stock overall. However, in many other communities, the design of inclusionary zoning policies is often not well-aligned with local market conditions. 

For example, Worcester used an economic feasibility analysis to explore whether it could apply its existing inclusionary zoning requirements to its 3A overlay district. Worcester requires developments with at least 12 units to either set aside 15 percent of the units for households making up to 80 percent of the area median income or 10 percent of the units for households making up to 60 percent of the area median income. According to the analysis, under these mandates, large projects “were found to be infeasible using standard assumptions about cost and expected returns.”  

Other communities have been more proactive about adjusting their affordability requirements over time. For example, in October 2024, after seven years without a single project proposal under its inclusionary zoning bylaw, Ayer reduced its required affordable housing set-aside percentage from 20 percent to 10 percent. 

Density Bonuses Can Have Big Effect

Moreover, reforming inclusionary zoning programs could be much more involved than merely changing the set-aside percentage. Program design elements like density bonuses and streamlined permitting can offer strong incentives to create significant amounts of affordable housing.  

A notable example of this is Cambridge’s 100 percent Affordable Housing Overlay, which significantly loosens height, setback, and permitting requirements for projects in which all the housing units are income restricted. In its first four years on the books, more than 700 units were approved under the overlay, and as of this writing more than 400 are under construction.  

Academic research also has found that “effective cost offsets” can reduce the risk that inclusionary zoning policies lead to either reduced housing production or higher market-rate prices. But because the level of offset required depends so much on the local market context, municipalities should involve practitioners in the process of amending inclusionary zoning bylaws.  

This includes gleaning cost data from developers active in the area across a wide variety of housing typologies and project sizes and using pro forma models to determine which of these typologies and project sizes might still be profitable under affordability mandates. 

Review IZ Ordinances Regularly

In practice, home prices and construction costs will always change faster than municipal regulations. But cities and towns can mitigate the risk of a market/ordinance mismatch by systematically reassessing market conditions at regular intervals. Chelsea’s inclusionary zoning ordinance, for example, requires city staff to conduct a housing market assessment every five years to “ascertain the need for revisions.”  

The last five years illustrate the importance of such a provision quite clearly: Since March 2020, the cost of construction materials has risen by nearly 40 percent, and effective interest rates on land acquisition loans have risen from 6.8 percent to 10.8 percent.  

Thus, despite rising sales prices, some inclusionary developments that would have been financially viable in 2020 may not be in 2025.  

Understanding whether and how to rework inclusionary zoning bylaws to account for these market shifts would not only help alleviate Massachusetts’ housing shortage, but would also facilitate construction of more affordable housing in a wider variety of places. And because of economic feasibility analyses used in Section 3A compliance, an increasing number of communities have a strong technical basis for implementing well-founded reforms to inclusionary zoning. 

Andrew Mikula is a senior housing fellow at the Boston-based Pioneer Institute.