HomeMy WebLinkAboutAC - MBTA Zoning Impact MemoMBTA Community Zoning — Financial Considerations
Appropriation Committee, Town of Lexington
February 14, 2025
Preface
This memorandum is addressed to Lexington's Town Meeting Members, Select Board, and Planning
Board. It represents the consensus view of the Appropriation Committee, which serves to advise Town
Meeting on financial matters. The document focuses on the potential financial impacts of recent changes
in our zoning bylaws, but we do not propose any specific remedies to mitigate these impacts.
This is not a report to Town Meeting on Article 2 of the 2025-1 Special Town Meeting. We acknowledge
that two members of the Committee have provided active support for that article by conferring with the
proponent and appearing before the Planning Board.
This document may be revised if new information becomes available, or if we update our analysis.
Background
In January 2021, the Massachusetts General Court passed and Governor Baker signed the MBTA
Communities Act to mandate multifamily housing development in 177 cities and towns in eastern
Massachusetts to address an area -wide housing shortage. The Act called for the Department of Housing
and Community Development (DHCD; now the Executive Office of Housing and Livable Communities
or EOHLC) to provide detailed requirements and guidelines for each of the 177 municipalities.I
The state mandate requires Lexington to establish zoning districts that allow multifamily housing as of
right. The districts must cover a total area of 50 acres or more and must allow for a gross density of 15
units per acre or more. The guidelines promulgated by EOHLC require Lexington to have districts that
support, in total, a dwelling unit capacity of at least 1,231 units (10% of the total current number of
dwelling units in Lexington).
Dwelling unit capacity is defined as the number of dwelling units that could be built given the acreage in
the zoning districts, setback, parking, and open space requirements, building height limits, wetland
protection restrictions, as well as the exclusion of parcels that are deemed to be not developable based on
public ownership, institutional use, etc.
The EOHLC provides a suite of software tools to calculate capacity estimates. These estimates are not
affected by the presence of existing structures within the zoning districts.
2023 Annual Town Meeting
Under Article 34 at the 2023 Annual Town Meeting, the addition of Section 7.5 to the zoning bylaws was
approved by the Town Meeting with the goals of creating multifamily housing and complying with the
MBTA Communities Act. In addition to specifying the regulations in the new section of the Zoning
Bylaw, Article 34 created twelve zoning overlay districts, each classified as a Village Overlay (VO),
Village High -Rise Overlay (VHO), or Multi -Family Overlay (MFO) District. The new districts cover 253
acres of which 228 acres are in lots with the remainder in rights of way. Since Section 7.5 allows
relatively small front, side, and rear yard setbacks, buildings as tall as 40 to 115 feet (the height limit
depends on the district and whether there will be nonresidential uses on the first floor), and requires
I In early January, 2025, the Massachusetts Supreme Judicial Court upheld the legality of the MBTA Communities
Act and its enforceability but ruled that the EOHLC guidelines were not properly promulgated. EOHLC issued
emergency guidelines and will go through a due process to promulgate final guidelines.
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minimal numbers of parking spaces, multiunit housing can be built with densities much higher than can
be built under other sections of the zoning bylaw. Thus, multifamily housing can often be developed
under Lexington's new bylaw at densities of 50 units per acre or more.
Before and during the deliberations on Article 34, the general expectation was that development of
multifamily housing would proceed slowly and take multiple years to approach the state's goal for
Lexington. This is documented in the presentation on Article 34 made by the Planning Board, which
states the expectation that 400 to 800 units would likely be built in the 4 to 10 years following approval of
the article.
After Town Meeting approved Article 34 and the Planning Office submitted the new bylaw together with
calculations of the unit capacity allowed under the new bylaw, EOHLC certified Lexington as compliant
with the MBTA Communities Acta EOHLC's certification is based on the areas and capacity estimates
for eleven of the twelve overlay districts. The district in Lexington Center was deemed non-compliant
because of that district's requirement for nonresidential uses on the first floor.3 EOHLC certified that the
current zoning bylaw yields a capacity of 12,546 multifamily housing units that can be developed by
right. This total does not include the capacity of 875 units in the Lexington Center district, which, when
included, brings the estimate of total unit capacity of the overlay districts to 13,421.
We note that the ratio of the multifamily unit capacity allowed by Article 34 to the 1,231 units goal set for
the Town by EOHLC is roughly 10 to 1. This is an outlier when compared to the responses to the Act by
other towns and cities where the ratios are typically lower than 2 to 1.
At the 2024 ATM, minor amendments of Section 7.5 were approved under Articles 50 and 51. In brief,
Article 50 increased the ratio of inclusionary units in developments with 14 or more units to 15%. Article
51 clarified the maximum height limits in Village Overlay districts when at least 30% of a building's
street -level space is designated for commercial use.
Economics of Development
It is difficult to accurately predict the long-term outcome of changes to zoning bylaws, and many factors
can influence when and how a developer eventually decides to use a parcel. These factors include the
nature of the land itself, the applicable zoning bylaws, and the potential for financial return under the
current economic climate. When considering parcels in the overlay zoning districts created under Section
7.5, we assert that the first two factors present limited impediments for a developer, and thus the primary
consideration will be financial profit.
It is relevant to ask how many of the maximum potential of 13,421 new units might be developed. There
are a few parcels with wetlands constraints, and some of the land in the districts is owned by the Town or
the State, e.g. the Town's main Fire Station, but these areas were already excluded from the calculation of
dwelling unit capacity.
Some development has already been done on almost all of the parcels in the overlay districts.
Considerations of the plausibility of redevelopment of any of these parcels must take into account the
values of existing developments. Some parcels in the overlay districts are currently in use by
2 This memo does not address issues regarding requirements for affordable housing in developments made under
Section 7.5.
3 The guidelines published in 2023 allow all or some of the multifamily units to be counted when the nonresidential
uses occupy only a limited area and have no associated parking requirements. We infer that the Lexington Center
overlay district was found to be noncompliant with the guidelines because Section 7.5 applies parking requirements
from other sections of the zoning bylaw to the nonresidential uses on the first floor of buildings in the Lexington
Center district.
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MBTA Community Zoning Impacts - Financial Considerations
organizations that are unlikely to relocate, such as Grace Chapel, St. Brigid's church, Temple Emunah,
and a private school.
Nevertheless, most of the land in the overlay districts could theoretically be developed as multifamily
housing. There are also Town -owned and State-owned parcels, such as 173 Bedford St. and the old
National Guard armory, that could become available for development in the future.
As of February 1, 2025, applications for site plan reviews under Section 7.5 have been submitted for nine
developments comprising a total of about 1,100 dwelling units on 22.3 acres for an average density of 49
units per acre. The densities in these applications range from about 19 units per acre to just over 80 units
per acre. As of the same date, five of the site plan review applications comprising 615 units have been
approved by the Planning Board.
The strong interest from developers demonstrated by these new applications is proof that Section 7.5 has
created new opportunities for development that are financially attractive. For some parcels in the Hartwell
Ave. area and in Lexington Center that already permitted intense commercial/industrial development, the
zoning overlay districts will have limited impact on their potential value. However, it appears that the
option for "by right" development of dense residential housing has drastically increased the value of most
parcels affected by Section 7.5, and they must be considered as potential sites for residential development.
One example is 89 Bedford St., a 1.59 acre parcel with an 1860s -era house that was assessed in FY2025
at $1,256,000, of which $687,000 represents the assessed value of the land. The historic house has now
been moved close to the sidewalk where it will be modified into two one bedroom units and a new
building is under construction that will contain 30 new condominiums (20 units/acre). The real estate
developer purchased the property for $7,250,000, a more than five -fold increase over its assessed value.
The purchase price averages to about $226,000 per new dwelling unit.
We do not have recent sales data for other parcels affected by Section 7.5. However, one can examine the
case of 17 Hartwell Avenue for which a site plan review application was approved by the Planning Board
on December 11, 2024. The parcel has an area of 5.26 acres and hosts a one-story, 31,000 sq. ft.
commercial building. As of 2024, the total assessed value was $12,830,000. The plan is to replace the
existing building, which contributes $9,445,000 to the assessed value, with new buildings containing 312
dwelling units (59 units/acre) and a parking garage. If we assume a conservative estimate of $100,000 per
planned new rental unit, then 17 Hartwell Ave. could be worth over $30 million in its present
predevelopment condition, enough to make redevelopment with multifamily housing an attractive
investment. This property is in a commercially zoned area, and under other circumstances it might have
been redeveloped as a biotech lab, but the demand for new lab space has significantly weakened over the
past few years.
As a result of Section 7.5, we expect sales prices for parcels in the overlay districts to create windfalls for
present owners while leading to profitable ventures for developers and thereby incentivize multifamily
housing development throughout the new overlay districts.
Will Applications Actually Result in New Residences?
Lexington is an attractive community that can support high rents for apartments and high sale prices for
condominiums. The Town's strong, persistent growth in new housing over the last few decades represents
a continuing boom for residential development in Lexington, even when development throughout the
region has faltered. This suggests that developers will be willing to initiate and follow through with
multifamily housing projects in Lexington.
Section 7.5 permits development "by right", i.e., the Planning Board, which conducts the required site
plan reviews, does not have the discretion to disapprove an application if the proposed designs conform to
MBTA Community Zoning Impacts - Financial Considerations
all provisions of Section 7.5 and other applicable Town regulations. The site plan review process may
require some projects to reduce the proposed number of dwelling units as shown by the example of 5 and
7 Piper Rd. where an application for 59 units was reduced to 46 units before being approved.
The greatest risk would be an unexpected external event such as a recession, depression, or large increase
in interest rates, which could dampen the housing market. Alternatively, a resurgence of the biotech lab
market could change the investment profile in the Hartwell Avenue and Maguire Road overlay districts,
bringing commercial development back to a competitive stance with residential development in those
particular areas.
Financial Implications of New Residences
The financial implications of the MBTA Communities developments involve both revenues from property
taxes and the costs for services provided to the residents of the new developments, as well as general
effects on local economic activity and property values.
Property Tax Revenue
The amounts of property tax revenue that may flow from new multifamily or mixed use developments
may be estimated based on assessed values of similar properties that are currently on the tax rolls. That
estimated tax revenue then needs to be corrected because the replacement of commercial property with
multifamily housing results in the loss of the tax revenue on the commercial property as well as the
associated personal property.
Condominiums are assessed according to estimates of the fair market value of each unit. Apartment
developments are generally assessed using the income method, i.e., the owners must provide data on their
income and expenses and the net result is subject to a capitalization calculation in order to derive the
assessed value.
From our initial research, we find that the current average annual property tax per apartment, considering
the apartment developments in Lexington built since 1987, is approximately $3,500. New condominiums
will likely be assessed at values considerably above those of typical apartments; for purposes of the
discussion below we assume that the average assessed value of new condominiums will be $1,000,000,
and, therefore, the average annual property tax bill for a condominium will be about $12,000.
Cost of Services
The costs of providing town services to residents of new dwellings will be primarily driven by the costs of
educating the new residents that are enrolled in Lexington Public Schools (LPS) or Minuteman Regional
High School, or placed out of district by LPS. There will also be an increased need for police, fire, trash
collection and disposal, and human services, as well as costs for capital projects related to population
increases. The latter may include projects to put additions on existing school buildings, to build new
schools, to improve townwide water and sewer infrastructure, or to modify streets or traffic signals to
cope with heavier traffic loads.
Studies done by the Lexington Public Schools have found that the average number of public school
students living in existing condominium and apartment complexes in Lexington is close to 0.7 students
per unit. The studies also found that apartments tend to have more students per unit than condos. The
number of bedrooms in a unit is a particularly important factor — the average number of students per unit
increases strongly from one -bedroom apartments to three-bedroom apartments.
Others have observed that the birth rate in Massachusetts and the U.S. is declining slowly. This suggests
that the number of students per dwelling unit is likely to decrease on a time scale of decades, but the
longstanding desirability of a Lexington residence may overwhelm the national trend.
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MBTA Community Zoning Impacts - Financial Considerations
For the purposes of understanding the implications of the construction of large numbers of residences on
Lexington's public school enrollments, we have applied data4 on current average school enrollments
broken down by grade levels K-5, 6-8, and 9-12, by type of unit, i.e., condominium (ownership) or
apartment (rental), and by number of bedrooms to the 1,096 units in the nine projects that are approved or
in the permitting process. These 1,096 units are comprised of 12% condominiums and 88% apartments,
with a larger proportion of one -bedroom units than in the existing condominiums and apartments. Using a
weighted average, we project that LPS will receive 550 new students from the 1,096 units, which is close
to 0.5 students per unit. We therefore assume that newly built residences will be inhabited, on average, by
0.3 to 0.7 students per dwelling unit, bracketing the average of 0.5 students per unit.
The Town is required to send data on education spending to the Massachusetts Department of Elementary
and Secondary Education (DESE). The most recent report (as of January 19, 2025) on per -pupil school
expenditures by Lexington on the DESE web site states a total per -pupil expenditure of $22,737 for
FY2022. The DESE figure excludes costs related to fixed assets and debt service. We updated the
FY2022 cost per student using the ratio of the FY2025 to FY2022 LPS operating budgets, yielding an
estimated cost of $26,490 per student for FY2025.
The increase in spending that is required to maintain educational quality at a constant level when
enrollments increase is not expected to match the average per -student expenditure times the number of
additional students. Under certain circumstances the marginal per -student expense increase may be
significantly less than the average per -student expense. However, when the additional students require
additional staffing, or even a new school building, the marginal per -student expense increase may be
significantly greater than the average per -student expense. Such variations from the average will tend to
diminish when many hundreds or thousands of new students enter the educational system, a possibility
that is likely if thousands of new dwelling units are constructed in Lexington. Therefore, for purposes of
our analysis we simply assume that education expenditures will need to be augmented by $26,500 per
additional student in order to maintain the quality of education at the current level.
There will also be expenditure increases needed in municipal departments, but we have not tried to
estimate thein since they are not expected to scale linearly with number of dwelling units.
Assuming $26,500 per additional student, the increase in educational expenses resulting from each new
dwelling unit will be approximately $8,000, $13,300, or $18,600 assuming, respectively, 0.3, 0.5, or 0.7
students on average per dwelling unit. If we assume that the new revenue for each new rental dwelling
unit, i.e., apartment, is $3,500 on average, then the budget gap is the expense per unit minus this amount
of new revenue per unit, i.e., $4,500, $9,800, or $15,100, before trying to account for increases in
expenses for school facilities, noneducational expenses, or decreases in commercial tax revenues. An
equivalent calculation for each new condominium dwelling unit with annual tax revenue of $12,000 is net
revenue of $4,000 or net expense of $1,300 or $6,600.
In the present context it is useful to consider the net expense, i.e., the needed expenditure increases less
the amount of new revenue, for every 1,000 units that are built. Here we assume that 20% of the new
units will be condominiums and 80% will be apartments.s We further assume that the revenues from new
condominiums more or less fully offset the net expenses to provide the services associated with those
units, but that the net expense per apartment unit falls within the range of the three values shown above.
4 From the 2025-01-24 Enrollment and Housing Update report from the Lexington Public Schools (hyperlinked
under References).
5 Plans submitted to the Planning Board for the 1096 dwelling units presently in the permitting pipeline state that
129 units or 12% will be condominiums, i.e., follow an ownership model and the remaining 967 units or 88% will
follow a rental model.
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MBTA Community Zoning Impacts - Financial Considerations
The above assumptions imply net expense increases of approximately $3.6, $7.8, or $12.0 million per
1,000 new units. To put that into context, the recommended FY2025 operating budget was roughly
$290.0 million, and $7.8 million is about 2.7% of that total.
Property Tax Revenue Loss
When commercial properties are redeveloped with multifamily housing, commercial property tax
revenues are lost. Those losses may be offset in part by commercial tax revenues obtained from the
nonresidential spaces on the first floor of some of the new buildings. However, the amounts of new
commercial tax revenue are likely to be modest, and we have not tried to estimate them. The annual
commercial tax revenue from four of the properties under development are as follows:
Address
FY2025
Tax Revenue
17 Hartwell Ave.
$310,486
3, 4, and 5 Militia Dr.
$229,343
185, 187-189 Bedford St.
$38,115
7 Hartwell Ave.
$44,383
Total
$622,327
Loss of the opportunity for more intensive commercial development at these sites will magnify, perhaps
greatly, the impact of residential developments in commercial zones. This applies in particular to the
properties in the CM zoning district on Hartwell Avenue, where zoning bylaws were recently modified to
permit much larger commercial developments (Article 16, Special Town Meeting 2020-2).
Economic Stimulus
An increase in population should be expected to lead to more activity at local retail and hospitality
businesses and, indirectly, to higher property values for the properties that host such establishments.
Furthermore, new housing on Hartwell Avenue may help invigorate the development of that area and,
especially, the health and extension of retail and restaurant uses in that commercial/industrial area. We
will not attempt to estimate the magnitude of these effects.
Water & Sewer Expenses
The Section 7.5 related development currently in the pipeline or to come in future years will change water
consumption and sewage generation amounts and time profiles. Commercial/industrial laboratory or
manufacturing facilities often consume large amounts of water, paid for at the highest combined water/
sewer rate tier. On the other hand, apartment/condominium households typically consume low to modest
water volumes (on a per-unit basis) and pay at the lowest combined rate tier. In effect, commercial water
rates subsidize residential water rates. Shifting the balance of water/sewer fee revenue away from
commercial and onto residential consumers could lead to modest water/sewer rate increases.
There may be a need for major water and sewer infrastructure projects, and we stress that capital expenses
for new water/sewer infrastructure associated with residential developments are typically borne by the
developer. The Water and Wastewater Enterprise Funds are independently funded through fees that are
adjusted annually to support the operation and maintenance of the Town's water infrastructure. Any
additional capital costs not covered by developers would ultimately be reflected in increased fees.
Traj ectory
The experience of the past year indicates that development of high-density multifamily housing in the
overlay districts is likely to proceed for several more years. A close examination of the parcel -by -parcel
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MBTA Community Zoning Impacts - Financial Considerations
make up of the overlay districts suggests that several thousand more dwelling units may be built over the
next several years. However, as we are limited to one year's experience, it is impossible to project the
future rate of development.
Under current zoning bylaws, development could proceed until most parcels in the overlay districts
contain multifamily housing. At the high end, this could result in the addition of up to 10,000 dwelling
units to the existing 12,300 units in Lexington. A nearly full build out would increase the population of
the Town from the current 34,000 to somewhere in the range of 50,000 to 65,000 residents.
New housing and new residents will increase the demand on LPS, police and fire, human services, traffic
management, trash disposal, and other operational services. They will also require new capital
investments to support a growing population. These increased demands will be challenging to balance
against the new revenue.
If the number of public school students in the new housing is comparable to the rates of students in
existing condominiums and apartments, and if property taxes paid on new housing are comparable to
what is paid on existing multifamily housing in Lexington, the Town will face a significant structural
budget gap.
Unless the community is willing to approve increases to the tax rate, resolving this gap could require
reducing the amount spent per LPS student, and could similarly affect the level of services from police,
fire, and other municipal departments .
Conclusions
The large area of 253 acres and allowance of very high unit densities are the fundamental aspects of
Section 7.5 that are driving the current wave of multifamily development projects.
In the near term, the rate of development for multifamily housing does not appear likely to abate. This
development is likely to result in far more dwelling units in Lexington than were initially predicted by the
Planning Board, with a commensurate increase in the population. The implications of massive
development will be far reaching and will touch many aspects of life in Lexington.
In this memo the Committee has explored both the potential new revenues and expenses associated with
Section 7.5 developments that are likely to or may proceed in the foreseeable future. We find that the
assessment method used for apartment developments yields much lower property tax revenues on a per-
unit basis compared to single-family homes and condominiums. We have made quantitative estimates of
potential increases in Lexington Public School enrollments and corresponding increases in education
expenses that may be needed to maintain educational quality. This analysis, based on some simplifying
assumptions, suggests that the increase of expenses for the schools will exceed new tax revenues by an
amount in the range of $4 million to $12 million for every 1,000 new dwelling units built in the overlay
districts. There is a reasonable probability that several thousand new dwelling units will be built in the
next decade, and therefore that the Town will confront substantial funding gaps that must be reconciled
during budget development.
We have noted that there may be additional increases in operating and capital expenses to provide new
school, road, or water/sewer infrastructure as well as increases in the costs of providing police, fire, and
other municipal services. These expense increases are not easily estimated, especially since many of them
will not be proportional to population increases but rather to become necessary only at discrete points in
population growth.
Finally, some of the Section 7.5 developments may result in the replacement of commercial properties
with residential properties, and there will be a loss of both the current commercial tax revenue and
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MBTA Community Zoning Impacts - Financial Considerations
potentially much higher future revenue, especially at properties in the Hartwell Ave. CM zone where the
zoning bylaw was relatively recent amended to permit more intensive commercial development.
It is imperative that the members of this Committee and other Lexington officials continue to make efforts
to understand the possible range of consequences of such development, and that they develop plans to
mitigate undesirable consequences.
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MBTA Community Zoning Impacts - Financial Considerations
Suggestions for Further Work
A number of aspects of the above analysis are subject to significant uncertainties, some of which could be
reduced by further analysis or input from others will relevant knowledge or expertise. However, major
uncertainties will remain even after further investigation until a substantial fraction of the developments
in the pipeline are built and occupied.
Below, we make suggestions for additional work that would help improve the ability of Town officials to
project the impacts of the development of multifamily housing in Lexington.
1. Discuss tax revenues from condos and apartments and possible tax revenues from new
developments with the Town Assessor.
2. Meet with LPS representatives to discuss possible assumptions about marginal expense increases
that will follow student enrollment increases.
Discuss the potential needs for new fire trucks, a new fire station, or another ambulance on call
with the Fire Chief.
4. Discuss the possible implications of development for water, sewer, and traffic infrastructure with
the Town Engineer.
Determine whether any of the very -large -volume users of water are located in Section 7.5 overlay
districts and whether the associated facilities will be replaced as part of a filed housing
development project.
6. Consult with someone knowledgeable about real estate on how assessed property values may
change as developments of multifamily housing are constructed in order to better project new tax
revenues.
7. Review the study of the impacts of Section 7.5 that has been commissioned by the Select Board
and Planning Board.
Meet with the Select Board, Planning Board, School Committee, Recreation Committee, Capital
Expenditures Committee, etc., to discuss the issues raised in this memorandum as well as other
related issues in order to better understand the potential impacts of Section 7.5 developments and
strategies for mitigating such impacts.
The Select Board has commissioned a study of the impacts of the MBTA zoning. The scope will cover
the impacts of the projects that have been approved by or are pending before the Planning Board. The
study will likely address a number of the above suggestions for further work. However, it does not aim to
project a rate of building beyond those in -pipeline projects and therefore will not consider the potential
impacts of to -be -submitted projects.
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MBTA Community Zoning Impacts - Financial Considerations
References
MBTA Communities Act
https://malegislature.gov/Laws/GeneralLaws/Parti/TitleVII/Chapter4Oa/Section3a
MBTA Communities law Q&A from the Attorney General's office
htt2s://www.mass.gov/info-detalls/mbta-communities-law-ga
Executive Office of Housing and Livable Communities (EOHLC) information on MBTA
Communities Act requirements
https://www.mass. gov/info-details/multi-family-zoning-requirement-for-mbta-communities
EOHLC letters to Town approving zoning voted under Article 34
https://www.mass. gov/doc/mbta-communities-district-compliance-letters/download
EOHLC Compliance Guidelines as revised August 17, 2023
htips://www.lexin tg onma.gov/DocumentCenterNiew/12228/Sec-3A-Compliance-Guidelines-
August-17-2023-
Planning Board report on Article 34
haps://www.lexin tg onma.gov/DocumentCenterNiew/8292/Article-34-PB-Report?bidld=
2023 Annual Town Meeting
haps://www.lexin tg onma.gov/1557/2023-Annual-Town-Meeting
2025-01-24 Enrollment and Housing Update
(contains table of no. of students per dwelling unit by condo vs. apartment, by number of bedrooms, and
by elementary, middle or high school grade for current Lexington housing)
haps://does.google.com/document/d/1 HW5rzzlmkPLNnzrkFgf2WUuSJ3JVOLe6r2cg2sd53 s/edit?
tab=t.0#headin4=h.jQ2aw 1 tpptm
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