Boston and a handful of inner suburbs have played an outsized role in Massachusetts’ recent multifamily housing production.
What happens if multifamily developers can’t bid enough to acquire urban development sites in the first place?
That’s the dynamic starting to play out in the Boston urban core, as a report released today by the Harvard Joint Center for Housing Studies spotlights the rising financial burden on middle-class and low-income renters. The JCHS report estimates that 25 percent of Greater Boston renters, or 340,000 households, are “severely cost-burdened” and pay over half of their income for housing.
Life science developers are paying two to three times as much per square foot for development sites as apartment developers in the urban core, according to research by Colliers International.
“Every piece of dirt is being looked at in Greater Boston, and the answer always starts off with lab,” Frank Petz, managing director of investment sales for Colliers Boston, said at the brokerage’s annual market outlook forum this week. “Residential had that role just three years ago. It’s an interesting civic dilemma. No one is jumping up and down to build [housing] now.”
With life science companies in the market for 5 million square feet of office-lab space in Greater Boston, the chance to attract high-rent-paying life science firms outweighs housing as a development strategy. Lab sites are trading for $300-$400 per buildable square foot, compared with $100-150 per foot for apartment sites and $150-250 per foot for condo sites, according to Colliers data.
More than half of the new multifamily units built in the Bay State between 2013 and 2017 were in Boston, Cambridge, Everett and Watertown, according to a 2019 report prepared by researcher Amy Dain for the Massachusetts Smart Growth Alliance. Boston alone has approved more than 32,000 housing units since 2011, including more than 6,600 income-restricted units.
Nationally, the price of commercial land doubled between 2012 and mid-2019, the JCFHS report stated, citing CoStar’s vacant commercial land index.
One major apartment landlord in Greater Boston predicts average rents at its local properties will rise another 3 percent in 2020, even as competitors prepare to bring nearly 6,000 new units to market in the urban core. Chicago-based Equity Residential reported average rents of $3,061 per month at its 25 properties in Greater Boston containing over 6,600 units.
Equity Residential wants to acquire more Boston-area properties given the region’s status as a “power center of the knowledge economy,” Chief Operating Officer Michael Manelis said this week in a conference call to discuss the company’s quarterly earnings.
Nationwide, households with incomes over $75,000 accounted for over three-quarters of renter growth between 2010 and 2018. Large luxury developments with 50 or more units accounted for 61 percent of completions in 2018, up from 27 percent in the 2000s, according to the JCFHS report. The report cited labor and land costs that are rising faster than inflation as a factor in the market skewing toward high-end properties.
“Young, college-educated households with high incomes are really driving current rental demand,” Whitney Airgood-Obrycki, lead author of the JCFHS report, said in a statement.