Storm clouds are rapidly gathering over Massachusetts’ economy, and it’s likely to make the state’s housing problems even worse. iStock photo

State tax revenues plunged by more than $2.2 billion in April, new residential construction has fallen off a cliff in Boston, and the once-red-hot jobs market is markedly cooling here and across the country. 

Silicon Valley Bank and First Republic, both major lenders in the real estate market in the Boston area, from jumbo mortgages to new development projects, have gone under in the past six weeks, shrinking the pool of available financing. 

Oh yeah, and let’s not forget Matt Gaetz, Marjorie Taylor Greene, and other members of the GOP ship of fools in Congress, gleefully playing a game of chicken over the federal debt ceiling and risking an economic cataclysm. 

Chatter about a potential recession has been around for months. But now key stats are flashing red, with a downturn seemingly in the cards, very likely in its initial stages. 

And if you think the real estate market, from new development to home sales, is a mess now, as that old saying goes, you ain’t seen nothing yet. 

This Downturn Won’t Help  

In a functional real estate market, a downturn would actually be good news, at least for buyers and renters who managed to hang onto their jobs. The market would be flooded with too many new homes and apartments, builders having gotten carried away during the boom times. 

Coupled with waning demand, the glut in inventory would bring down prices and rents. 

But the real estate market in Greater Boston, as in other major cities in the Northeast and on the West Coast, has been anything but functional now for decades now. 

There hasn’t been a true housing boom in the Boston area since the 1970s and ’80s, with entrenched NIMBY attitudes and a gauntlet of local restrictions on development having resulted in a big decline in the number of homes and apartments built each year. 

That has not just kept home prices rising, but it has kept them rising far beyond any increase in wages, with extremely and historically low interest rates the only mitigating factor keeping many buyers in the market. 

With the spike in interest rates, the days of 3 percent mortgages are gone. 

And now, our chronically inventory-starved housing market is headed for some new lows, with the looming downturn coming as close close to completely shutting down new housing construction as we have ever seen. 

New Construction’s Swan Dive 

Boston saw new building permits plunge by more than two-thirds, or nearly 69 percent, during the first four months of 2023 compared to the same period in 2022, city permitting stats show. 

Census data shows building permits also fell in Greater Boston as a whole – a region that includes Eastern Massachusetts and Southern New Hampshire, according to the Census Bureau – by a pretty sizable 16 percent as well. 

And the trend appears to be getting worse. April saw just 47 building permits issued for new homes and apartments across the entire city of Boston. 

That represents a stunning 94 percent decline from April 2022, when builders began work on 789 new apartments and condos. 

For that matter, Cambridge and Somerville don’t appear to be doing much better, but it’s hard to parse the latest stats for those cities, which are only available through March. 

We Know What Comes Next 

The implications should be obvious here. Unless you somehow believe market forces and the law of supply and demand don’t have any bearing on the housing market, you know new housing construction’s plunge off the cliff will likely freeze – if not bolster – Greater Boston’s already unbearably high prices even as the economy weakens and shifts into reverse. 

Scott Van Voorhis

Freeze it, that is, for a year or two until a recovering economy and the return of buyers and renters sends prices to ever-higher levels. 

All this should be a call to action for Gov. Maura Healey, who has made tackling the housing crisis – and in particular bringing down costs – a top priority. 

Healey now has the go-ahead to hire her promised housing secretary as House Speaker Ron Mariano let the clock run out – perhaps by habit? – on his chamber’s chance to have a say in the governor’s bureaucratic reorg.  

The governor and Lt. Gov. Kim Driscoll have promised quick action on hiring the secretary and cleaving the state Executive Office of Housing and Economic Development in two. Let’s hope that she announces the first steps in that effort between when I wrote this May 4 and when it’s published on May 7. 

We are in a crisis when it comes to housing, and there really is no time to lose. 

Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.