BONNIE HEUDORFER
Law is ‘market-driven’
Housing proposals under the state’s controversial comprehensive permitting law have slowed in the last two years as the residential real estate market has softened, a new report shows.
Builders also are delaying projects permitted under the law, known as Chapter 40B, and in some cases are even selling permitted land.
The number of requests for site-approval letters from state agencies, the first step in the permitting process, fell almost 40 percent last year from 2005, the report revealed. Only 62 requests for site-approval letters were submitted last year, down from 102 the prior year. Requests for site approvals slipped 20 percent in 2005 from 128 in 2004.
“The fact that new 40B proposals are down is not, by itself, cause for concern. [Chapter] 40B is market-driven and activity under the statute mirrors what is happening in the larger marketplace,” said Bonnie Heudorfer, who prepared the report for the Citizens’ Housing and Planning Association.
A far bigger concern, says Heudorfer, is whether housing creation will pick up quickly enough when the economy rebounds. When the economy tanked in the early 1990s, development came to a virtual standstill as builders waited for a glut of units to be sold. But when the economy recovered, the pace of new-home construction wasn’t fast enough to meet a surge in buyer demand, she said.
“Of greater concern is whether the state’s housing development pipeline, of which [40B projects] represent a substantial share, can be brought to market in a timely manner as the economy improves and demand picks up,” she said.
The decline comes as home and condominium sales statewide fell more than 10 percent last year and the single-family median home price dipped nearly 6 percent, according to The Warren Group, parent company of Banker & Tradesman.
But it also comes as Chapter 40B has undergone intense scrutiny. State Inspector General Gregory W. Sullivan initiated an ongoing investigation of 40B projects last year and his office found that a handful of developers inflated expenses and reaped profits that should have been returned to communities. Sullivan has been quoted in published reports as saying developers were “taking advantage of a weak oversight system.”
Chapter 40B enables developers to apply for a comprehensive permit, bypassing certain local approvals, if they are building housing that includes at least 20 percent units that are affordable to low- and moderate-income households.
Supporters credit the law with creating housing for lower-income families, particularly as home prices and rents soared. Indeed, the report shows that 884 developments, totaling 48,289 rental and homeownership units, have been permitted under the law throughout the state. More than half of those homes are for households earning up to 80 percent of the area median income.
An estimated 30 percent of all affordable and market-rate housing permitted in Greater Boston between 2002 and 2006 was approved under the law. According to Heudorfer’s report, activity under the law has increased dramatically since 2000, and the comprehensive permit has been used by a more diverse group of developers.
‘A Healthy Pipeline’
CHAPA Executive Director Aaron Gornstein, a 40B advocate, said he is “somewhat concerned” about the recent reduction in proposals.
“Overall, when you look at the past five years, 40B has been the essential tool for increasing affordable and market-rate housing production in Massachusetts. Without it, we would be much further behind and in a much worse situation in terms of overall supply,” he said.
Gornstein pointed out that despite the slowdown in proposals, there is “a healthy pipeline of development” going through the process. There are 95 approved developments, totaling just over 6,000 units, that haven’t started construction yet, according to the CHAPA report.
In addition, 196 projects – totaling 16,817 units – are currently in the process of getting approval from a local zoning board or through an appeals process. Another 102 projects with almost 6,500 units have received site-approval letters but haven’t gone before a local zoning board yet.
Still, despite support from housing advocates and builders, the law has generated controversy. Local leaders have complained that developers are abusing the law and building excessively large projects that drain their town services and budgets. In addition, abutters and other opponents have increasingly challenged proposed housing developments in court, according to the report.
Local developers believe that those activities, in addition to the cooling housing market, have led to the drop-off in 40B proposals.
Paul Cusson, principal of a real estate consulting and development firm specializing in 40B projects, said lengthy delays in the comprehensive permitting process have frustrated some developers.
Even though Chapter 40B is supposed to provide speedier permitting, Cusson said he has seen developers who have been entangled in the permitting process for three to five years.
Cusson, of New Bedford-based Delphic Assoc., said he is working on a 10-lot single-family home subdivision in Middleborough that has been tied up in the courts for almost six years.
“Some developers are looking at these delays and opposition, and with all the rules and regulations [they’re] saying, ‘Is it really worth the effort to provide affordable housing?'” Cusson said.
Jonathan Flood, vice president of acquisitions and business development for Braintree-based John M. Corcoran & Co., said 40B opponents have become more aggressive in challenging projects, a trend that has increased the risks and uncertainties associated with building under the law.
“Most developers and builders are averse to risk. If the risks associated with using one program increases, they’re going to use and look for alternatives,” said Flood, who co-chairs the Home Builders Association of Massachusetts’ Chapter 40B Subcommittee.
Flood agreed that the market slowdown has been one factor in the decline in proposals but said regulatory changes, the inspector general’s probe and increased opposition also have affected activity.
Some developers who have secured permits are postponing the start of projects, phasing developments to build only a few units at a time or trying to sell-off permitting projects. Advertisements in the April 9 issue of Banker & Tradesman illustrated just a sample of 40B projects on the market, including a 104-acre site in Westport that’s been approved for an 89-lot subdivision.
Another ad in the same issue included a 63-acre site in Westminster permitted for 102 market-rate condos and a 36-acre property in West Boylston with a permit for 36 market-rate units.
“I think the costs involved in getting the permits can be very substantial, and right now – particularly on the homeownership side – there are projects that can’t get financed and developers don’t have the confidence that it will be a feasible project because of so many other factors as well,” Flood said.
The MIT Center for Real Estate is currently finishing a study of comprehensive-permit applications in the Greater Boston area since 1999. The report, which will be unveiled on May 22 at a conference, will examine delays in the permitting process and other factors and issues that arise after a permit application is filed.
Henry Pollakowksi, director of the Housing Affordability Initiative at the MIT Center for Real Estate, said it shouldn’t be a surprise the proposals are down because the Chapter 40B law is essentially a form of a density bonus.
“Density-bonus programs are really only set up or only expected to work in a strong [real estate] market,” said Pollakowski, noting that the market-rate units will help subsidize the affordable units.
Meanwhile, supporters of 40B say Heudorfer’s report dispels common misconceptions that projects built under the law are too large and include market-rate housing with excessive price tags.
Most 40B developments, or 66 percent that have been built since the law took effect, contain fewer than 25 units, according to the report. Nearly two-thirds of the homeownership projects that have been built include five or fewer units per acre, while half of the rental project include between 10 and 19 units per acre.
Gornstein pointed out that typical 40B projects include market-rate units ranging in price from $280,000 to $450,000..”That represents the most affordable new housing production [in the state],” he said. “There are developments in very strong market areas that include larger homes that are selling for more, but that’s not the typical 40B development.”
