Clifford Meredith, an Eastern Shore developer who has made a business of building subdivisions on waterfront farms in Talbot County, Md., says he just doesn't understand what is wrong with his tastefully built homes.

"This development isn't hurting anything," he says, sweeping his hand to include a quarter-million-dollar house under construction and the Miles River in the background. "How can this possibly hurt the Chesapeake Bay?"

A Maryland state commission, however, has said that Meredith's projects and much of the development on the bay's waterfront have contributed to the decline in the water quality and wildlife habitat of the Chesapeake. The commission has proposed a series of tough land-use restrictions that builders and developers in the Eastern Shore counties say would slow their business to a standstill.

The proposal, which was put together by the Maryland Critical Areas Commission, is expected to be adopted by the Maryland General Assembly during the upcoming legislative session, legislative leaders, Eastern Shore residents and developers agree. Anticipation of the new rules has touched off a land rush in some counties as landowners scurry to get their land subdivided before the restrictions take effect.

Although the proposal would do several things to slow pollution of the bay and retain its wildlife habitat, the most sweeping changes would be in the amount of development allowed in what is considered the critical area for environmental quality: a 1,000-foot band along the shore of the bay and its major tributaries.

Under the proposal, new intensive development would be allowed only in areas already primarily devoted to industrial and commercial use and/or that have more than four residential units per acre. This residential density is the main definition of intensive development.

Limited new development -- anything between four units per acre and houses on lots up to five acres -- would be allowed in areas that already are moderately developed, yet retain some natural habitat. But these areas would be strictly regulated.

Wetlands, forests, agricultural land and areas with less than one house per five acres would be set aside as resource conservation areas where development would be limited to one new house per 20 acres.

Intensive and limited development areas would be allowed to grow beyond these limits, but only in 5 percent of the land in each county's designated resource conservation area.

While developers and landowners in all the Maryland counties that border the Chesapeake are concerned about the Critical Areas proposal, the loudest protests are coming from landowners in counties that were poised to expect significant development over the next two decades, such as Calvert and Charles counties on the Western Shore and Talbot and Queen Anne's counties on the Eastern Shore.

Land in Talbot County is now zoned for one home on every two- or five-acre lot -- the predominant sizes -- while in other counties such as Queen Anne's, some of the prime waterfront land is zoned for denser development.

Developers and landowners in those two counties, which would be the Eastern Shore jurisdictions hit hardest by the restrictions, are fighting adoption of the recommendations, saying the proposal would reduce land values and unfairly penalize the Eastern Shore counties that see themselves as on the brink of development.

Talbot and Queen Anne's historically have had farming and crabbing economies but, during the past two decades, pleasure boating, tourism, development and the declining health of the bay have tempted watermen, landowners and farmers to use their land and waterfront access for other purposes.

Queen Anne's, which includes Kent Island and which extends to the northeast, has been developing steadily over the past five years as developers have run out of land in Annapolis and have moved east looking for vacant waterfront. Kent Island, which is at the eastern end of the Chesapeake Bay Bridge, increased in population from 3,832 residents in 1970 to 8,177 in 1980, and that growth rate has continued over the past five years.

Talbot County, which lies south of Queen Anne's along Rte. 50 and which includes the towns of Easton, St. Michaels and Oxford, has begun to see a development boom over the past several years, particularly along the many creeks and rivers and around the principal towns.

In particular, Washington and Baltimore retirees have washed into the small towns and new developments. A handful of developers in the two counties have become very successful buying waterfront farms and then subdividing them into developments for retirees looking for houses on two- to five-acre parcels and a view of the bay.

Environmentalists have been alarmed, however, by a trend developing on Kent Island, where several developers have started building more intense projects, including the new Oyster Cove development south of Rte. 50 in the Grasonville area. When completed in two to three years, Oyster Cove will consist of 38 town houses and 16 apartment buildings with 12 units each that will be sold as individual condominiums.

"There's been a tremendous amount of damage to the bay from development," said Broughton Earnest, an Easton attorney active in conservation groups on the Eastern Shore. Earnest is a member of the Wildfowl Trust of North America, which has its headquarters on a farm just across a creek from the new Oyster Cove development.

"The developers will say their projects don't pollute, but the most drastic thing you can do is bulldoze down the trees along the shoreline, which they do to improve the views," Earnest said. "The Canada Goose population is declining because there are fewer and fewer resting and feeding places for the birds.

"In the long run, the critical-areas recommendations will be a real boon to conservation of the bay," Earnest said. "The problem is that, in the short run, it will mean economic hardship for people with development plans."

Landowners who are anxious to get land subdivided and registered with the county before the Critical Areas proposal is adopted by the legislature have flooded the Talbot County planning office with subdivision applications over the last three months. In a typical year, Talbot County has had applications for 200 new lots. That figure doubled this year.

As a result, Talbot officials adopted a moratorium on new subdivision applications, effective Dec. 1, in conjunction with a similar deadline set by the Critical Areas commission.

Anthony Redman, a private planning consultant, said he has been swamped with business this fall. "It's not that everyone is interested in developing their land right now, but they are getting it platted for subdivisions so that they do not lose the opportunity to develop it in the future," he said.

Redman estimated that nearly 50 percent of the 442 miles of shoreline that would have been in the conservation reserve in Talbot County already has been platted in anticipation of the legislation, effectively removing that land from the protections of the proposal.

Developers and real estate agents on the Eastern Shore say, however, that the Critical Areas proposal still is expected to reduce business, possibly even making it impossible for people of moderate incomes to afford a shorefront home in those counties.

Although the cost of existing land is likely to increase, developers and landowners estimate that they could lose millions of dollars for each waterfront farm that could have been subdivided. Many of the landowners say they are considering challenging the Critical Areas proposal on constitutional grounds. "The government is taking away value and not compensating landowners for it," Meredith said.

While some of the developers argue that such zoning issues should be left to the local jurisdictions, environmentalists say that local governments would have a more difficult time enacting and enforcing strict land-use limits to protect the bay.

But the developers and landowners question the need for the restrictions. "They aren't going to limit pollution of the Chesapeake Bay by limiting subdivision development on the Eastern Shore," Niley said. "There are so few voters over here that, even if our delegation votes against it, we can't stop it. It allows the state to appear as if they have done something about pollution in the bay. That is all."