I. OVERVIEW OF STATE’S BUILDOUT ANALYSIS.

The Executive Office of Environmental Affairs of the Commonwealth of Massachusetts (“EOEA”) recently led a coalition of state agencies in preparing “buildout analyses” of the Commonwealth’s 351 municipalities. These analyses are intended to provide information for local development or revision of master plans to address growth issues. The Commonwealth’s current effort attempts to quantify the amount of developable land in each city and town and then purports to project maximum residential, commercial and industrial development under existing zoning laws. This hypothetical condition, under which all land in a municipality is developed, is referred to as “full buildout” or “buildout.”

The static methodology employed by EOEA fails, however, to take into account a number of important factors: (1) the dynamic nature of growth, (2) the long-term timeframe of full buildout, (3) the constant tightening of local zoning codes in response to development, and (4) the limitations posed by public purchases of or restrictions on land and the resulting rising costs of land. Quite simply, effective buildout analyses must account for a variety of external, real-world constraints that limit and guide actual commercial and residential development. The EOEA’s analyses fail to account for these real constraints.

It is critical that municipalities receiving a state-sponsored buildout analysis place it in a broad context that reflects the great range of influences on the development process. Key factors include, but are not limited to, the high cost and limited supply of housing, restrictions on municipal finance, limits on transportation, water and sewer capacity and the impact of economic cycles on growth. EOEA’s analyses address only one component in planning for future growth. If combined with an understanding of the many other local impacts, such analyses can more accurately and effectively help in planning for the future so that Massachusetts and its communities enjoy sustainable economic growth.

Growth is essential to economic vitality, expanded employment opportunities and funding for municipal and state services and infrastructure improvements. Planning for growth will succeed where it promotes economic prosperity while enhancing the quality of life. Accordingly, growth policies must be balanced - they must not only expand economic opportunity, but also address challenges facing municipalities such as growing schools, lack of affordable housing, aging infrastructure and the limitations of local finances. Similarly, assumptions regarding growth must be balanced - they must not only attempt to quantify growth, but also to reflect real world phenomena such as economic cycles and physical and financial infrastructure limitations.

II. BUILDOUT ANALYSES WITH ANTI-GROWTH BIAS.

The EOEA, in consultation with the Department of Economic Development, the Department of Housing and Community Development and the Executive Office of Transportation and Construction, implemented a program of “buildout analyses” covering each of the 351 municipalities in Massachusetts.

An outgrowth of Executive Order 385 -- the 1996 “anti-sprawl” initiative signed by former Governor William Weld -- the program of buildout analyses is intended to be used as one tool in EOEA’s larger effort to “help communities preserve open space and community character.” Under this program, the Commonwealth attempts to quantify for local governments the hypothetical growth in residential, commercial and industrial land use that would occur if communities were to be developed to the fullest extent currently allowed under their respective local zoning codes.

Although buildout analyses have been used in planning studies, they are generally used in conjunction with other tools and in the context of a broad set of informational resources. Absent consideration of the broad range of influences which actually affect the development process, any buildout analysis is likely to reflect a bias against growth. Further, because the experience and training of planning officials in Massachusetts communities varies widely and many smaller towns do not have the resources to employ full-time planners, the buildout analyses may prompt some localities to consider zoning changes that unwisely undermine healthy economic growth.

To help lessen any adverse impact arising from the EOEA’s analyses, NAIOP’s Massachusetts Chapter funded this study to explore more objectively and broadly the implications of the buildout analysis program. This paper examines the methodology developed by the EOEA for its buildout analyses and considers the importance of placing that analysis in a broader context in order to make effective projections for growth in Massachusetts. The themes explored in this report were developed in consultation with an Advisory Committee comprising members of NAIOP’s Massachusetts Chapter. This paper also reflects the Growth Principles previously announced by NAIOP’s Massachusetts Chapter which are attached as Appendix A.

III. EOEA’S ANALYSIS FAILS TO ACCOUNT FOR THE DYNAMIC QUALITY OF GROWTH.

The goal of the buildout analyses is to project the amount and type of development that could potentially occur in Massachusetts communities if all land that is undeveloped or targeted for redevelopment were in fact built out to the full extent allowed under current local zoning. EOEA’s contract planners first identified the amount of developable land in a community by updating the most recent zoning maps to reflect any new information on pending development, protected open space and/or additional related land-use controls. The contract planners then determined if any other legal, physical or environmental factors will so significantly influence or constrain future development in the town that no reasonable buildout analysis could be done without considering them. According to the EOEA, these factors might include (1) particular ownership of parcels of land, (2) “grandfathering” of certain large parcels, (3) water and sewer infrastructure, (4) buffer zones related to environmental regulations, and (5) the presence of miscellaneous factors such as transmission lines.

Having identified the amount of developable land, the contract planner then consulted with appropriate town officials as to the nature of development envisioned for these open or redevelopable parcels. Because zoning law restricts, without dictating exactly, what can be built on open land, the buildout analyses often necessarily relied on assumptions as to the type of development that was likely to occur in the future. In essence, the contract planners made educated guesses.

The buildout analyses, however, rely largely on static assumptions. In contrast, actual future development may occur in a number of divergent directions and at varying rates. The following are some specific implications that EOEA’s approach fails to address:

Development occurs in a dynamic manner. The market forces of consumer demand and preferences, competing supply, and economic cycles will lead to varying rates, location and quantity of residential, commercial and industrial development within any individual community. Contrary to the EOEA’s implied assumption, growth does not take place at a constant rate in all 351 cities and towns in the Commonwealth.

“Full buildout” transpires over the long term. The EOEA's analyses assume short-term “full buildout” of residential, commercial and industrial land throughout the Commonwealth. With the exception of short-term predictions based on projects already in the permitting pipeline, it is virtually impossible to anticipate future development trends. To the contrary, the only certainties are that the rate, location and quantity of growth will vary over time and that full buildout will occur, if at all, in the long term, not the short term.

Zoning evolves in a restrictive manner in response to growth. The cycle of growth and zoning is an iterative process in which one influences the other. Periodically, municipalities reevaluate and change the uses allowed in zoning districts in response to evolving growth pressures. In addition, municipalities will continue to influence future growth with new types of zoning controls such as site plan review, overlay districts, growth management bylaws, phased growth controls, building permit caps and impact or linkage fees.

The public sector will shrink the supply of buildable land. As cities and towns grow, many will face pressure to build additional public facilities such as schools and parks and otherwise set aside open space. Municipalities will acquire land in response to these pressures. Moreover, cities and towns also may elect to purchase land in order to pre-empt development.

Land costs inhibit unrestrained growth. Appreciating land values will limit the supply of individuals and businesses with the financial ability to purchase land for residential, commercial or industrial development.

Given the substantial uncertainty of the assumptions upon which the buildout analyses are based, it is important to provide a larger context in which to evaluate these analyses. It is only in this manner that the buildout analyses can be utilized appropriately as just one planning tool among many.

IV. CRITICAL ISSUES AFFECTING GROWTH BUILDOUT PROJECTIONS.

The state-sponsored buildout analyses are flawed in that they provide only a static evaluation in a dynamic world. This section addresses a number of key constraints that will likely affect any projections for future development.

In making projections of this nature, two types of variables must be considered: those that are realistically quantifiable, and those that – while difficult to evaluate – can nonetheless undermine a seemingly reasonable projection. In the first category are variables that deal with capacity: supply and cost of housing, water and wastewater, municipal finances, and transportation. The second category includes real constraints imposed by market and political forces. Chief among these external factors is the economic cycle. With proper analysis of the quantifiable variables, buildout analyses can more realistically reflect the likelihood and pace of future growth. This report begins to examine some potentially quantifiable capacity issues in Massachusetts with an eye to demonstrating how they will affect growth projections.

A. Increased Costs and Decreased Availability of Housing.

Trends show that, in the last several years, the cost of an average detached single-family home in Massachusetts has risen dramatically – by 33 percent– and the number of listings has dropped significantly as well, by nearly 30 percent. During 1999-2000, sales of “reasonably” priced single-family detached homes – defined by the Massachusetts Association of Realtors as $300,000 or less – have fallen 14 percent, from 13,820 to 11,884 units. The only increase in sales volume comes from single-family detached homes worth more than $500,000, rising 38.6 percent from 975 to 1351 units.

Massachusetts is not producing new housing at a rate comparable either to the nation or to New England. This result is due, in part, to the rising costs of raw land and increased time and expense associated with local permitting processes. The rate of permitting from May 1999 to May 2000 for single-family homes in Massachusetts was down 15 percent for the Boston area and 11 percent for Massachusetts as a whole, versus 9 percent for New England; 6 percent for the Northeast [New England, NY, NJ and PA]; and only 2 percent for the U.S. Permitting for single-family detached homes is down since 1998 as well although there has been some growth in permitting for multiple-unit dwellings.

Evidence also suggests that in the metropolitan areas of the state, even when the rate of permitting has increased, growth has lagged behind the nation and region; when the rate of permitting has fallen, the reduction has been deeper and more severe. Relative to the nation and even the rest of the northeast, housing growth has been sluggish.

The Commonwealth does not offer housing sufficient in quantity or attractive in pricing to attract and house new residents. Housing costs are spiraling. It is difficult for all but the highest level of earners to find an affordably priced home in an attractive community. This market has a distinct negative impact on future employment growth which, in turn, reduces the demand for commercial construction.

B. Limits on Municipal Finances.

In Massachusetts, the property tax is the single largest source of funding for local governments. Proposition 2½, however, limits the amount of property taxes that can be levied in a given year. It also limits the amount that local property taxes can be increased from one year to the next. Residents in individual municipalities may choose to vote to alter these limits by a majority vote for overrides , debt exclusions , and capital outlay expenditure exclusion .

Review of the types, number and success rate of overrides since the 1980’s shows that there is a limited tolerance for permanent increases in the property tax limits that are set aside by an override vote. In 1989, 40% of the 470 overrides passed and in 1998, 71.4% of only 49 overrides passed. The success rate during the intervening years was only between 25-45%. The downward trend in the number of referenda held in recent years supports this fact. More limited exclusions, like temporary tax increases for single capital projects and the retirement of debt over a limited term, have been more successful. Municipalities may, for example, be willing to endure a temporary levy increase in order to fund the construction of a new school or to purchase new police equipment. The low passage rate of straight overrides to Proposition 2½ does suggest, however, that residents of Massachusetts towns are unwilling to raise their base tax rates on a permanent basis to fund increases in general municipal operations.

These real limits on municipal finances often preclude the development of infrastructure necessary to support continued economic growth.

C. Limits on transportation infrastructure.

The buildout analyses need to account for limitations in regional and local infrastructure that will restrict the amount of residential and commercial growth below that for which it is otherwise zoned. Existing inadequate infrastructure constrains growth. The region’s network of highways – national, state and local – along with its transit system have capacity problems that will not be resolved in the foreseeable future due to practical, political and financial limitations.

As the agency primarily responsible for the ongoing study of the transportation network in the Boston metropolitan area, the Central Transportation Planning Staff (CTPS) has identified or targeted further study hundreds of traffic and transit problems at sites throughout the area – from the North Shore to the South Shore, and west to Interstate 495. Inadequate road capacity or poor maintenance issues must first be confronted to allow for continued economic growth in all regions.

Furthermore, limitations in the Federal and State funding of highway projects (outside the Big Dig), that the Commonwealth is now experiencing, and will experience for the foreseeable future, will also severely limit resolution of existing traffic problems and expansion of new corridors.

Buildout analyses must be tempered by an understanding of whether the existing road network can accommodate increased traffic. Less accessible communities will be unlikely to attract development on the order of magnitude projected, regardless of how the land is zoned.

D. Limits on Water and Sewer Capacity

Water delivery and sewage collection are additional examples of infrastructure that may lack the capacity to accommodate growth at the levels projected by the EOEA study. Even though these types of systems theoretically can be expanded to accommodate growth, the time, expense and political difficulty inherent in doing so acts as a strong deterrent to development.

Due to concerns about the preservation of adequate groundwater and streamflow levels (e.g. approximately 80% of the public water supply in the I-495 Corridor is pumped from groundwater) as well as the depletion of groundwater through new wells and expanding sewers, municipalities are limiting growth patterns. Many communities have imposed water conservation restrictions on water users and go beyond state-mandated measures (such as the Zone II and Interim Wellhead Protection Area land use controls). These include:

(1) Zoning overlay districts or bylaws for water resource protection. These ordinances and

bylaws restrict land use activities within the defined geographic area (usually determined by mapping zones of contribution). The overlay bylaw or district takes precedence over the underlying zoning that was in force before the overlay district was adopted.

(2) Large lot zoning. Expansion of lot sizes in subdivisions used to protect water resource

areas.

(3) Open space acquisition. Land purchase agreements and other financing of the purchase of open space with Land Banks, wildlife refuges, conservation easements, and public-private partnerships.

Many areas of Massachusetts are not served by sewer systems and must rely on Title 5 (subsurface septic systems) for wastewater disposal. The criteria for installation of Title 5 systems are such that many areas which have naturally high groundwater or poor soils cannot be served by these systems. This restriction effectively limits growth in those areas. Even if a Title 5 system is feasible, the vast majority of commercial and industrial businesses are not inclined to locate in areas where they must use such systems if there is an alternative location which is sewered.

While public sewer systems will be extended into unsewered areas over time, high costs, limited funding availability, permitting hurdles and mixed community reactions, will continue to constrain the rate of expansion of sewer systems in the Commonwealth. In turn, these obstacles slow the rate of growth in unsewered communities.

E. Impact of Economic Cycles on Growth Projections.

EOEA’s buildout analyses do not account for the downturns and upturns of economic cycles. During recessions, residential and commercial development will decrease. This reality alone tempers the EOEA’s predictions of unchecked growth. Moreover, during periods of economic expansion, development in the Commonwealth does not proceed unconstrained. Historically, population growth in the Commonwealth has been matched or exceeded by growth in the workforce. Over the last ten (10) years, there has been a greater increase in job holders than in the population of the Commonwealth. Thus, recent job growth is the result of a higher percentage of the workforce being employed rather than growth in the Commonwealth’s population. This factor tempers rate of growth projections.

The percentage of women who work has slowly but steadily increased over time. This factor has contributed to the gradual increase in overall employment. As fewer “at-home” women are left to enter the employment market, however, employment growth based on this factor will increase at a lower rate.

Another major component of the labor pool in Massachusetts is immigration from outside the United States. Over the last ten years, immigrants have accounted for much of the growth in the Commonwealth’s labor pool. More restrictive immigration policies adopted by the U.S. Congress will decrease this rate of growth.

With the historically low levels of unemployment, increased employment will not yield substantially greater growth. As such, the majority of employment growth will have to come from outside of Massachusetts. Given this limitation, it is reasonable to question whether continued commercial development can possibly match the state’s open-ended projections.

V. CONCLUSION.

The EOEA’s buildout analyses are the product of a well-intended program and represent one useful component in planning for future growth. For the reasons this report outlines, however, the analyses’ limitations of scope mean they cannot serve as the only planning tool. Alone, they actually distort the view of the future and will inevitably lead to inappropriate planning choices. In order to plan effectively for the future, local officials must be given data in a broader context than is currently provided – a context that conveys the very real constraints on development.

These constraints, which are addressed in part above, make it highly unlikely that full buildout will ever be approached in most municipalities. The process of development is very much an iterative one, in which communities can and do consider what has come before in responding to succeeding rounds of development. This fundamental dynamic also constrains development in a way not considered by the Commonwealth’s analyses. Sensible planning for Massachusetts and its communities must be mindful of the need to allow continued economic growth even as it protects natural resources. Providing balance for the current buildout analyses is a necessary part of this process.

APPENDIX A

NAIOP’S GROWTH PRINCIPLES – MASSACHUSETTS CHAPTER

“Smart growth” is a planning approach that can integrate the sometimes-conflicting demands of economic vitality, natural resource management, and population growth. Smart growth can promote economic prosperity and enhance the quality of life through measures that respect the importance of freedom of choice, flexible land uses, and the environment. Smart growth should incorporate the following principles:

§ Business growth is essential to economic vitality, expanded employment opportunities, and funding for municipal and state public services and improvements.

§ Growth policies should encourage and support the revitalization of inner cities and older suburbs.

§ Policies designed to control sprawl should not infringe on the freedom to choose where to live and work.

§ Providing for an adequate supply of housing for a broad range of incomes is a social, economic, and moral imperative.

§ Smart Growth should provide a means for anticipating and accommodating development in response to market demand and should provide the necessary infrastructure to support it.

§ Regional planning should be encouraged, where appropriate, by offering municipalities incentives to join together to resolve common concerns with mutually beneficial solutions without creating additional layers of government.

§ Growth policies cannot be crafted without also addressing underlying municipal challenges, such as schools, housing, infrastructure, safety, and public finances.

§ Predictability, fairness, and timeliness are key standards that must be built into the permitting process.

§ Adequate funding of professional support staff and training of local decision makers should be priorities.

ACKNOWLEDGEMENTS

The Massachusetts Chapter of NAIOP would like to express its thanks to Marcus Tonti for his role as research intern for this project. We are particularly appreciative for the funding provided by the national NAIOP Educational Foundation. There were many local NAIOP members that participated in the extensive review and re-write process. We would especially like to thank the co-chairs of the NAIOP Growth Task Force: Brian Levey, Bowditch & Dewey; Robert Fishman, Nutter, McClennen & Fish, LLP, and Stephen Logan, Nordblom Company. NAIOP would also like to thank the Executive Office of Environmental Affairs and Metropolitan Area Planning Council for providing information contained within the buildout analyses. The report additionally incorporates information concerning the region’s inventory of commercial office and retail space, courtesy of Spaulding & Slye/Colliers, Finard & Co. and the Massachusetts Alliance for Economic Development.

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