The distinction is made possible under a state program called 40R, which makes it easier for developers to obtain permits to convert old buildings into housing and new businesses. The city would receive $600,000 in upfront state cash and an additional $3,000 per new residential unit.
More than 500 condos or apartments are possible, with about 300 already in the pipeline. A developer affiliated with the Boston Archdiocese also is considering building 57 units.
Up to 20 percent of all housing will be sold at an affordable rate, or 80 percent of the market value, under the state's 40R rules.
Mayor James Fiorentini has been pushing for the 40R zone for about two years. The 40-acre district will extend from the Merrimack River to Wingate Street and the railroad line to Washington Square in historic downtown, a mix of old brick shoe factories.
"This puts us at the forefront in the state as a leader in rebuilding our downtown," said Fiorentini, who has been actively pushing his downtown revitalization plans.
Haverhill is among eight communities that have been approved by the state for 40R zones, which combine housing and commercial development near public transportation.
The City Council voted 7-2 last night in favor of the new smart growth zone. Councilors John Curtin and William Macek were opposed.
Curtin is worried the developments would attract low-income renters who depend on state subsidies and burden the schools with more students.
"It's a very dangerous situation for us to take a chance," Curtin said.
William Pillsbury, the city's planning director, said the owners and tenants of the affordable housing will mostly be young professionals.
"The type of population we'll see in the downtown will not be a fearful thing," Pillsbury said.
Macek, who was a member of the 40R committee assembled by Fiorentini, said there were too many unknowns about 40R for him to support it. For instance, there is no guarantee that Gov.-elect Deval Patrick will support funding 40R as Gov. Mitt Romney does.
Former City Councilor Louis Fossarelli spoke at the meeting last night, comparing the law to the state's 40B rule, which allows developers to sidestep many local zoning laws to build affordable housing.