Aaron Gornstein – Homes ‘unaffordable’

The year 2001 may be inscribed on tombstones to mark the death of several industries, but the residential real estate market was one of the few to escape relatively unscathed.

Home prices continued to rise and sales remained steady despite the slowing economy and onset of recession. The trend held even after one of the country’s most traumatic events – the Sept. 11 terrorist attacks.

There was a slight softening in the rental market, with apartment vacancies in the Greater Boston area creeping up for the first time in the last three to five years. In the early fall, some area landlords even resorted to incentives, including offering a rent-free month, to attract new tenants.

The luxury home market also started hurting as more people lost their jobs, the stock market wavered and newfound wealth disappeared. Higher-end homes stayed on the market longer and sellers started to ease price demands.

The economic downturn had some real estate experts predicting that the tide was turning in favor of homebuyers.

However, the lack of housing and continued demand kept the residential real estate market afloat while other industries floundered. It also helped that interest rates were slashed almost a dozen times, making it more attractive for homebuyers to purchase a new house.

It was a good year, said David M. Walsh, president of the Massachusetts Association of Realtors. Sales increased almost 6 percent in the third quarter of the year.

At the beginning of the year, MAR leaders predicted a slowdown. We did see a steadying of the market in 2001, said Walsh. There was more inventory on the market and supply started to meet the demand, [but] buyer demand was still there.

The high-end market was most affected by the economic downturn, said Walsh, who added that he started seeing luxury home sales easing as early as last spring.

The second half of the year was marred by the Sept. 11 terrorist attacks, but residential real estate wasn’t as adversely affected as some other industries.

It [Sept. 11] sort of put a freeze on the real estate market for a relatively short period of time, said Edwin J. Shanahan, chief executive officer of the Greater Boston Real Estate Board. It was a temporary freeze. People didn’t know what was happening – what is going to happen. As a result, people held off on big decisions and obviously big decisions include buying a home.

When reviewing 2001, housing and real estate leaders also point to two critical issues – the lack of affordable housing and Chapter 40B.

Earlier this year, a flurry of bills were filed to change Chapter 40B, the state’s so-called anti-snob zoning law originally passed to increase production of housing for low- to moderate-income people.

According to the law, in communities where less than 10 percent of the housing stock is considered affordable, builders can all but bypass local zoning rules if they include affordable housing as part of their building proposals.

But many state lawmakers – after hearing complaints from communities about builders abusing the law and about not being able to handle huge growth spurts – sought to drastically change the rules. Some sought to alter what was counted toward the 10 percent affordable housing goal – one proposal suggested that prisons should qualify in the tally – while others wanted to decrease the threshold to as little as 5 percent.

While the state Department of Housing and Community Development changed some of the Chapter 40B regulations in late summer, Senate and House leaders have yet to reach a compromise on the various changes they approved earlier this year.

When you look back on 2001, and you look at efforts to change – some would say to eviscerate – [Chapter] 40B, then that’s a big issue, said Shanahan.

There are still too many out there, I think, that feel that 40B is the enemy or that 40B needs to be dramatically cut back. It is the one vehicle that’s allowing us to produce the necessary housing to catch up to demand, said Shanahan.

Housing advocates also lined up this year to defend Chapter 40B.

Chapter 40B has dominated the housing agenda in the State House, said Aaron Gornstein, executive director of the Citizens’ Housing and Planning Association.

Gornstein said a key issue in 2001 was that housing affordability continued to worsen. He noted a CHAPA study released in September that showed that only few Greater Boston communities were affordable. The study showed that people who earn the median income for the area could afford to buy a median-priced home in only nine of 127 Greater Boston communities.

Even in the second half of the year, when the price increases have moderated and homes are remaining on the market longer – even with those factors – the typical home in Massachusetts is still unaffordable to the average resident, said Gornstein.

Old Issues
Throughout the year, some ongoing issues resurfaced, including rent escrow and the problem of so-called expiring-use properties.

In October, Boston city leaders approved a home-rule petition that would allow an established board to set rents at expiring-use properties – federally financed affordable housing units that are eligible to be converted to market-rate rentals once the mortgages are paid off.

GBREB leaders rallied against the measure, saying that it smacks of rent control, and maintained that the federal government is helping current tenants of those properties to keep affordable housing.

Shanahan said similar proposals have been unsuccessful in Milford, Salem and Dartmouth.

There’s been an acknowledgement that rent control is not the answer, he said. We need more housing, and if we apply rent control on any portion of the housing stock, then we’re not going to get more housing.

Some Realtors felt they scored a victory when state lawmakers passed bills regarding the escrowing of rent during tenant and landlord disputes.

For the first time, we’ve got an acknowledgement by both the House and the Senate that there is a problem that needs to be addressed and the problem is the abuse of the rent-withholding statute, said Shanahan.

The House and Senate passed different rent escrow bills as part of the omnibus housing bill, which will be hashed out in conference committee in early 2002. The committee will also determine what changes will be made to Chapter 40B.

In the meantime, affordable housing advocates are celebrating the startup of the Affordable Housing Trust Fund, a five-year $100 million trust set up to create and preserve affordable housing, and the approval of the Community Preservation Act in 35 communities.

The CPA, passed by the Legislature last year, allows communities to impose up to a 3 percent surcharge on annual property taxes and get matching state money to create and preserve affordable housing, open space and historic sites. Boston voters rejected the CPA in November.

In other news, MAR underwent several changes as a new top executive took over this year.

John Fridlington joined MAR as its new executive vice president this year, after the group ousted its former administrator in 2000. The departure of the former administrator proved to be a tumultuous period for the association.

MAR President Walsh said there was a major push this year to reunify as a group.

The association did just that, according to Walsh. MAR leaders updated the group’s bylaws and rewrote the six courses of the Graduate Realtor Institute – both major undertakings.

In addition, Walsh appointed a task force to the tackle the issue of agency law. Massachusetts is currently a common-law state, meaning it has no specific or clear definitions or legislation regarding how seller’s agents, buyer’s agents, subagents and dual agencies operate in the Bay State.

The committee has formulated a plan for agency that will be solidified and decided on in 2002, according to Walsh.

We’ve accomplished a tremendous amount, said Walsh. Our goal was really to revitalize and reunify the association.

Housing Surfaces as Strong Industry Sector

by Banker & Tradesman time to read: 5 min