Boston multifamily construction starts are substantially down, and while many blame interest rates some in the development community say more is at work. iStock illustration

With all due respect a bunch of academics, however distinguished, should not be left to decide the fate of the Boston housing market as construction of new condominiums and apartments slows to a crawl.

Mayor Michelle Wu spent months last fall hinting she was looking at a major tax incentive deal to get stalled residential projects into construction.

But in comments to reporters after her State of the City speech in January, Wu made a dramatic U-turn and threw cold water on the idea, at least temporarily, citing a study she had commissioned by her old Harvard professor, noted real estate expert Ed Glaeser.

Glaeser and colleagues at Boston College, Boston University and Federal Reserve Bank of Boston concluded that a major tax abatement at best would produce a modest amount of new housing, but at the cost of forgoing a large amount of future tax revenue.

Wu administration officials continued to insist they were still examining the idea, but the mayor put the final nail in the coffin earlier this month in a speech to the business-backed Boston Municipal Research Bureau.

Citing developers she said she consulted, the mayor noted that interest rates would have to come down significantly, by one or two percentage points, before many of the projects currently stuck in limbo can move forward. And citing Glaeser’s study, the mayor said the cost of that mooted tax break “isn’t in the best interests of our residents” at this time.

However, the Glaeser study – and months of hints that some sort of tax break was coming – represent a major lost opportunity on part of the Wu administration for some introspection and a potential course correction when it comes to its development policies.

The study itself was too narrow, focused on a particular type of tax abatement program similar to the one that New York has used to spur creation of tens of thousands of new units of housing, admittedly one I’ve cheered in this space before.

Yet the real issue is not whether one particular program is the ideal one or not for Boston.

Rather, it’s the plunge in housing starts over the past two years at a time when apartment rents and home sale prices continue to break new records – a plunge that means those prices are in for even bigger increases in the not-to-distant future.

Boston’s in a Housing Slump

Certainly, the big rise in interest rates is a major culprit as are construction costs, which remain high, especially in expensive coastal cities like Boston.

But the Wu administration’s push to boost the amount of affordable housing developers are required to include in every new apartment and condo building, as well as tough new energy efficiency requirements, have also generated fierce pushback from developers who say they are struggling to get projects off the ground as it is.

Yes, the Boston Planning & Development Agency gave the green light to record numbers of new apartments and condos last year.

Some developers are likely rushing to get their projects OK’d before the Wu administration’s new mandates kick in later this year. Under the new rules, 20 percent of all the units in every significant market-rate building must be money-losing, affordable set-asides, rented or sold at below-market rates.

(You might be interested to know that San Francisco, another city with excruciating housing costs, has been going in the opposite direction amid its own housing production collapse. It plans to lower its affordability requirements down from more than 21 percent.)

Whatever the case in Boston, developers are not rushing to pull building permits and start construction, with housing starts, especially for market-rate buildings, down dramatically – and this should be setting off more alarm bells in City Hall.

Look Broader for More Ideas

The group of academics assembled by Wu would have been much better employed if they had been entrusted with a wider mission.

That, in turn, could and should have involved documenting the severe drop in residential construction in Boston and examining the possible factors that may be contributing to it, including the Wu administration’s own policies.

The panel should have also been entrusted with looking at a wide range of potential solutions, from temporarily lowering some regulatory requirements to various tax incentive programs and help with project financing.

Scott Van Voorhis

And the group charged with writing the report should have included developers and real estate executives with experience in the day-to-day challenges of building new housing. Sure, some real estate executives did get a chance to offer their thoughts and feedback to the academic experts in charge, but others have been fuming on the sidelines, seeing Wu’s decision a sign the mayor is lukewarm or even hostile to the development community. Along with developers, the group could also have used a construction company chief or two, as well as some representatives from the local trade unions who work on these projects.

“I would rather be governed by the first 2,000 people in the Boston telephone directory than by the 2,000 people on the faculty of Harvard University,” conservative icon William F. Buckley Jr. was said to have once quipped back in the 1960s.

No knock on the good professors who studied the housing tax break proposal for Wu, but it would have been good to get a wider perspective.

Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.