Cambridge Civic Journal Forum

Urgent Legal and Policy Concerns Regarding Cambridge’s Inclusionary Zoning Ordinance – a letter from Patrick Barrett

Date: May 1, 2025

City Manager Yi-An Huang
Mayor E. Denise Simmons
Members of the Cambridge City Council
City Hall
795 Massachusetts Avenue
Cambridge, MA 02139

Subject: Urgent Legal and Policy Concerns Regarding Cambridge’s Inclusionary Zoning Ordinance (Section 11.203)

Dear City Manager Huang, Mayor Simmons, and Honorable Members of the City Council,

I write to highlight critical legal and economic flaws in Cambridge’s Inclusionary Zoning Ordinance (Section 11.203), which mandates that 20% of residential floor area in developments with 10 or more units be dedicated to affordable units. While the City’s affordability goals are laudable, the ordinance’s non-compliance with state law, reliance on outdated economic assumptions, failure to meet procedural mandates, and disproportionate impact on smaller developers demand immediate action. Specifically, I address: (1) non-compliance with the MBTA Communities Act; (2) failure to conduct a required nexus study by April 2022; (3) reliance on the outdated 2016 David Paul Rosen & Associates report amidst changed economic conditions; and (4) legal vulnerabilities under recent judicial precedents.

1. Non-Compliance with the MBTA Communities Act
The MBTA Communities Act (M.G.L. c. 40A, § 3A), enacted in January 2021, requires MBTA communities like Cambridge to establish a zoning district of reasonable size allowing multi-family housing as-of-right with a minimum gross density of 15 units per acre, located within 0.5 miles of a transit station, without age restrictions and suitable for families. Cambridge, as a rapid-transit community, was required to submit a compliant zoning ordinance to the Executive Office of Housing and Livable Communities (EOHLC) by December 31, 2023. We have been certified compliant however we are not in compliance with our own zoning requirements and lack a valid economic feasibility analysis (EFA). This opens the question of the validity of certification and what if any standards are being met in certification. If Cambridge is to be an example to other towns currently fighting the MBTA Communities Act we must, at a bare minimum, be in compliance with our own laws. Further the 2025 Multifamily Housing Zoning Amendment eliminated most of the “bonus” density awarded to inclusionary projects as a financial offset. This was done without a corresponding nexus study which would have been required to show the impact of removing bonuses anticipated by the Rosen report.

The February 2025 zoning reform, allowing multi-family housing citywide up to four stories (six stories for inclusionary projects on lots ?5,000 sq ft), aligns with Section 3A’s density and as-of-right requirements. However, the 20% affordability requirement exceeds EOHLC guidelines, which permit up to 10% of units at 80% Area Median Income (AMI) without an economic feasibility analysis (EFA). Higher percentages, up to 20%, require an EFA demonstrating financial viability. Cambridge’s blanket 20% requirement, applied citywide without a recent EFA, is not in compliance, as it clearly does render projects economically infeasible without significant cross collateralization as seen in 121 Broadway, and is particularly onerous given rising costs since 2016.

2. Failure to Conduct a Required Nexus Study (Section 11.203.2(c))
Section 11.203.2(c) mandates that the City “initiate a reevaluation of the Inclusionary Housing Requirement at an interval of no more than five (5) years” to assess the percentage of affordable units, income eligibility, and program effectiveness. The ordinance was amended in April 2017, increasing the requirement from 15% to 20% based on the 2016 Rosen report. The first reevaluation was due by April 2022.

No evidence indicates a comprehensive reevaluation occurred. The 2018 Inclusionary Housing Report, documenting 258 units completed or under construction, is a progress update, not a nexus study. The Community Development Department’s (CDD) ongoing monitoring (1,200+ units since 1998) and the 2025 reform do not fulfill Section 11.203.2(c)’s mandate. This procedural failure undermines the ordinance’s legitimacy, as the City cannot justify the 20% rate’s proportionality under Sheetz v. County of El Dorado (2024), which requires legislative exactions to be tailored to project-specific impacts. Non-compliance suggests arbitrary policymaking, exposing the ordinance to legal challenges.

3. Outdated 2016 Rosen Report and Changed Economic Conditions
The 2016 David Paul Rosen & Associates report recommended increasing the inclusionary requirement to 20%, contingent on four conditions to ensure economic feasibility. The report’s economic assumptions are outdated due to significant changes by 2025 in interest rates, land costs, construction costs, utility costs, capitalization rates (cap rates), and new zoning regulations not anticipated in 2016. Most conditions remain unmet, exacerbating the ordinance’s adverse impact, particularly on smaller-scale projects of 10 or more units.

Analysis of the Rosen Report

• Interest Rate: The report assumed a blended interest rate of 4.5–5.0% for construction and permanent loans reflecting 2016 market conditions. By 2025, interest rates have risen to 8.5–10.8%, increasing debt costs.

• Land Cost per Unit: The report estimated residual land costs at $50,000–$170,000 per unit for multi-family developments (6–300 units), with smaller projects at higher costs (~$150,000–$170,000) and larger ones at lower costs (~$50,000–$80,000). By 2025, land costs have escalated to $150,000–$250,000 per unit (47–200% increase), requiring ~$200,000/year additional NOI at a 5.0% cap rate, unfeasible without higher rents or incentives.

o Disproportionate Impact: Smaller-scale projects of 10 or more units but under 200 face greater economic barriers under the 20% inclusionary mandate compared to larger or incentivized projects permitted under the 15% mandate (December 2016–June 2017), such as 425 Mass Ave & 47 Bishop Allen Drive (completed 2018 by Twining Properties), 195-211 Concord Turnpike (completed 2018 by Bozzuto Group), and more recent projects like 121 Broadway which levered outstanding commitments, increased density, and funding from the CRA. Market Central, including 47 Bishop Allen Drive, leveraged a Planned Unit Development (PUD) and Memorandum of Understanding (MOU) granting ground floor area exemptions, an FAR increase to 6.5, a special overlay re-mapping, and height increases to 195 feet from by-right 55 feet and special permit 80 feet, enabling affordability via retail (15,400 sq ft) and residential revenue (Link, Watermark). Atmark Cambridge used mixed-use revenue (retail). Smaller projects lack such advantages, facing:

• High Land Costs: ~$200,000–$250,000 per unit (47–200% higher than 2016), increasing financial burdens.

• Rising Construction Costs: Up 50-60% since 2016, straining budgets for projects without economies of scale.

• New Zoning Costs: Article 22 (2018, amended 2023), tree protection (2019), and climate resilience (2021) add 10–25% to costs ($1.5M–$12M for 50,000 sq ft).

• Removal of Density Bonus: The 2025 six-story bonus for lots ?5,000 sq ft is absent in high-density zones (e.g., Central Square) or insufficient to offset 20% mandate costs without density bonuses.

• Permitting Delays: Community meetings (Footnote 37) and environmental reviews add $20,000–$50,000, disproportionate for smaller developers. As-of-Right projects subject to Article 19.50 averaging roughly 7-12 months and 11 – 20 months if a 19.23 special permit is required.

• Construction Costs: The report assumed stable prices (~$200–$300/sq ft). By 2025, costs have risen nearly 40% due to supply chain issues, labor shortages, and inflation.

• Utility Costs: The report implied 2016 utility costs. In 2025, costs have risen significantly, reducing NOI:

o Electricity: Up 38% (22.5 to 31 ¢/kWh), increasing monthly costs by $150/unit, reducing NOI by $14,688/year for 12 units.

o Natural Gas: Up 67% ($1.50 to $2.50/therm), reducing NOI by $14,400/year for 12 units.

o Heating Oil: Up 52% ($2.70 to $4.10/gallon), reducing NOI by $10,800/year for 12 units.

For a 12-unit project, a $39,888 NOI drop lowers value by ~$864,000 at a 5.0% cap rate, hitting smaller projects harder.

• Cap Rate Comparison: The report implied cap rates of 4.5–5.0% (Class A/B) and 5.0–5.5% (Class C). In 2025, cap rates are 4.8–5.3% (Class A/B) and 5.3–5.8% (Class C, CBRE), driven by higher interest rates and costs. A $1M NOI project at 4.5% (2016) yields $22.22M, but at 5.0% with $43,200 NOI drop (2025), yields $19.12M—a 14% valuation drop, worse for smaller projects with higher effective cap rates (~5.5%).

Additional Post-2016 Zoning Changes
Since 2016, Cambridge adopted regulations not anticipated in the Rosen Report, increasing costs:

• Article 22 – Sustainable Design and Development (2018, amended 2023): Mandates LEED certification and net-zero readiness for projects over 25,000 sq ft, adding 10–25% to costs ($6M–$12M for 50,000 sq ft per BXP reports) and $10,000–$50,000+ in application delays not including costs to carry.

• Tree Protection Ordinance Enhancements (2019): Requires tree permits ($100–$500/tree) and replacements ($500–$1,500/tree), adding $5,000–$20,000 and $10,000–$30,000 in delays.

• Climate Resilience Requirements (2021): Mandates flood-resistant designs, adding 5–15% to costs ($1.5M–$5M for 50,000 sq ft) and $20,000–$50,000 in delays.

• Elimination of Minimum Parking Requirements (2022): Saves $500k–$2.5M by removing $50,000–$100,000/space, but most for sale condo buildings seek to add parking not remove it thus the bonus only truly applies in a rental scenario.

These changes increase costs by 10–25%, offsetting parking savings and rendering the 20% mandate unfeasible for smaller projects without density bonuses.

Four Conditions for Raising Inclusionary Requirement Outlined In Rosen
The Rosen report outlined four conditions to support the 20% requirement:

1. Increased Density Bonuses: Recommended citywide FAR bonuses.

o 2025 Relevance: Not Met. The 2025 six-story bonus (lots ?5,000 sq ft) is limited or absent in high-density zones, unlike Market Central’s PUD concessions. Removing density bonuses further undermines feasibility, likely requiring a new nexus study and opening to challenge the current ordinance.

2. Flexible Requirements for Smaller Projects: Suggested tiered percentages (e.g., 10–15% for <20 units).

o 2025 Relevance: Not Met. The 20% mandate is uniform, deterring smaller projects. It is not clear that 10% works for smaller projects (10 – 20 units) based 2025 conditions.

3. Streamlined Permitting Processes: Advocated faster permitting.

o 2025 Relevance: Partially Met. As-of-right zoning and parking elimination help, but community meetings (footnote 37), special permits through Article 19, Small Project Review in Article 19.50, environmental reviews, and traffic and parking mitigation add massive delays.

4. Periodic Reevaluation: Required reassessments every five years.

o 2025 Relevance: Not Met. No 2022 reevaluation occurred, leaving the 20% rate unadjusted despite cost escalations, removal of bonuses, and passage of the MBTA Communities Act.

The unmet conditions and outdated assumptions (4.5–5.0% interest rate vs. 8.5–10.8%, $50,000–$170,000 vs. $150,000–$250,000 land cost, 40% construction cost increase, 20–136% utility cost increases, 4.5–5.0% vs. 4.8–5.3% cap rates) make the 20% mandate infeasible for smaller projects, especially without density bonuses.

4. Legal Vulnerabilities

The ordinance faces legal risks:

• Unconstitutional Takings: The 20% mandate lacks proportionality, failing the Nollan/Dolan/Sheetz test, relying on the outdated 2016 Rosen report without a 2022 nexus study. Removing density bonuses would exacerbate this by increasing the exaction’s burden without justified impact assessments, risking due process violations.

• MBTA Communities Act: The 20% requirement exceeds EOHLC guidelines (10% without EFA, 20% with EFA). Without bonuses, a new EFA is needed to prove feasibility, or the ordinance risks non-compliance with Section 3A.

5. Recommendations

To address these flaws, I urge the City to:

1. Reduce the Inclusionary Housing Requirement: Lower to 10% without an EFA to comply with M.G.L. c. 40A, § 3A as an emergency measure for the next three years.

2. Initiate a Nollan/Dolan/Sheetz-Compliant Study: Conduct a nexus study per Section 11.203.2(c) to justify exactions. Require CDD act immediately and limit time to completion.

3. Explore Returning Development Bonuses: Direct the Cambridge Community Development Department to create bonuses that anticipate the 2025 multifamily housing change including but not limited to fast tract permitting, removing Article 19, scaling inclusionary with tailored nexus studies per Sheetz, and any other potential bonus to offset the exorbitant burden IZ zoning places on residential development.

Cambridge’s housing leadership is commendable, but the ordinance’s flaws undermine its effectiveness and legality. Please work to rapidly address the issues raised herein to address the urgency of the housing crisis we are in and to ensure we do not further encumber ourselves with ineffective counterproductive regulations.

Sincerely,
Patrick W. Barrett III