JEFF RHUDA

More building permits were issued in the Bay State during the first three quarters of the year compared to the same period last year. But permitting for single-family homes dipped nearly 9 percent during the same months, and Massachusetts continues to lag the nation when it comes to the construction of single-family dwellings.

Even though the majority of permits issued so far this year are for single-family homes, the number of single-family home permits has declined every year since 1998, with the exception of a slight increase between 2001 and 2002. And during the first three quarters of the year, permits for single-family dwellings accounted for 66 percent of all the permits issued, down from 76 percent a year ago. Nationwide, single-family home permits accounted for 78 percent of the nation’s building permits issued through September 2003.

The statistics have been closely followed by the state’s homebuilders who argue that housing construction has not kept up with population growth over the years and blame local regulatory restrictions for restricting supply and fueling high housing prices.

“I think that if we’re lagging the nation, the bottom line is that we’re not producing enough affordable housing to house our workforce,” said Paul Novak, a Worcester attorney who is the president of the Home Builders Association of Massachusetts.

Through September of this year, 13,754 building permits were issued in Massachusetts, up 4.7 percent from the 13,134 permits issued during the same months in 2002. Of those permits, 9,160 were for single-family homes, a drop from the 10,046 single-family permits issued a year ago.

“Ultimately, the decline in single-family permitting is directly related to rapid run-up of housing prices,” said Jeff Rhuda, a housing developer with Symes Assoc. in Beverly. Citing statistics from the Massachusetts Association of Realtors, Rhuda noted that the average single-family home price has risen 73 percent since 1998.

“It’s Economics 101 – supply goes down, prices go up,” he said.

What are even more compelling statistics, according to Rhuda and Novak, is that the state provides only a small share of the permits that are issued nationwide. In 1985, the state’s permits accounted for 2.26 percent of all the permits issued in the country, according to statistics from the U.S. Census Bureau. By 2002, that number had dropped to only 1 percent, the homebuilders said.

“Our market share is off dramatically,” said Rhuda. “While the rest of the country is going one way, we’re going the opposite way.”

Permitting for multifamily housing, particularly for buildings with five units or more, however, increased during the first three quarters of the year and accounts for a higher percentage overall of permits issued than they did last year. Some 3,522 permits were issued for buildings with five units or more, a 53.8 percent increase from the 2,289 permits issued a year ago, according to the Census Bureau. Permits for buildings with five units or more represent a quarter of all the permits issued through September of this year, compared to last year’s 17 percent.

‘Supply Problem’

In recent years, politicians, business leaders, academic researchers and Realtors have joined homebuilders to focus on the housing crunch as a critical barrier to the state’s economic development. Economists and local leaders have repeatedly referred to “brain drain” in the state, meaning that the high housing costs are driving young professionals out of Massachusetts.

The Greater Boston Chamber of Commerce and The Boston Foundation unveiled a report just last month which showed that high housing costs was one of the factors discouraging recent college graduates from staying in the Boston area. In public speeches, Gov. Mitt Romney often notes that local business executives have indicated that the cost of housing is the biggest obstacle to expanding their businesses in the Bay State.

“We have a serious supply problem,” said Rhuda. “The Massachusetts economy cannot grow with housing pricing at its current level.”

Earlier this year, the Rappaport Institute for Greater Boston at Harvard University’s John F. Kennedy School of Government released a report that showed that inconsistent and confusing local and state regulations are blocking housing production in the state.

Novak and other homebuilders are all too familiar with the consequences of too many constraints on new housing development. A trip along Route 128 or Interstate 495 will reveal “a tremendous amount of available office space,” according to Novak. The vacant offices won’t be filled, he said, because businesses won’t come to the region if there isn’t enough housing that’s affordable for their employees.

“It’s having an adverse effect on the economy,” said Novak. “If we’re not producing enough housing, the prices will continue to increase.”

Citing statistics from the Census Bureau, Novak said the number of permits issued in the Bay State in 2002 dropped 10 percent from 1998. During the same years, the number of permits issued nationwide rose 8 percent, he said. Meanwhile, permitting for single-family housing fell 18 percent from 1998 to 2002 in Massachusetts, while nationwide such permitting jumped 12 percent.

“The supply is not being produced,” said Novak.

Nationally, some economists and housing analysts are predicting housing construction will slip a little but still remain strong next year. At a recent construction forecast conference organized by the National Association of Home Builders, economists noted that there has been a resurgence in economic growth during the second half of the year and “continued vitality in the nation’s housing market.”

“It’s perfectly clear that economic growth has been accelerating sharply since June, and forecasts of GDP [gross domestic product] growth for the second half of 2003 and for 2004 are quite strong,” said NAHB Chief Economist David Seiders in a prepared statement. “Moreover, according to the consensus outlook of economists participating in our event, the housing sector will do very well through 2004. There will be some fade in home sales and housing starts as interest rates gravitate upward next year, but sales for all of 2005 are likely to be the second highest on record and total housing starts should reach 1.7 million units – off only 5 percent from 2003’s surging pace.”

Aglaia Pikounis may be reached at apikounis@thewarrengroup.com.