Barry Bluestone
Homes ‘out of reach’
According to The Greater Boston Housing Report Card 2004, the areas in and around the city have received an F in affordability but managed to scrape by with a B or B-plus in housing production. The 64-page study, entitled “An Assessment of Progress on Housing in the Greater Boston Area,” also found that the metropolitan Boston area is now the most expensive in the United States, though the report also noted positive trends in increased building permits.
The study, released last week, is the third annual analysis and review of the state of housing in the region, spearheaded by the Boston Foundation, the Center for Urban and Regional Policy at Northeastern University and the Citizens’ Housing and Planning Association.
The report found that a family of four must pay $64,656 for basic necessities in Greater Boston, which exceeds expenses in New York City by $6,000 and San Francisco by $7,000, making the Hub the costliest place to live in the nation.
Comparatively, living expenses, which in this case include health care, child care and other basic needs, were $44,000 or less in Austin, Texas; Chicago; Miami; and Raleigh, N.C.
Not only has the cost of living increased, but the median price of a house in the region has risen more than 37 percent between 2001 and 2004, and has doubled since 1998. According to the report, which used local real estate data compiled by The Warren Group, parent company of Banker & Tradesman, housing prices in Greater Boston were estimated to be 40 percent higher than in Austin, Texas; Chicago; or Miami.
The study also reported that as recently as 2000, more than two-thirds of Greater Boston communities had median single-family home prices below $300,000. In 2004, that number dropped to less than 12 percent.
The increase in home values not only has affected those people looking to buy homes, but also those struggling with the costs of properties they already own, according to Bonnie Heudorfer, the report’s principal author.
“We know these prices are very hard on first-time homebuyers, but it’s also very hard on long-term owners who have seen real estate taxes go up as values increase. Now as more and more existing residents are facing rising costs associated with rising values, it’s broadened the [number of] people who are hurt by this,” she said.
Even with the obvious expenses in the market for long-term owners, first-time buyers or those looking to trade up or down, housing sales are still going strong.
“Even with high prices and a growing affordability challenge, sales of all types of housing – single-family, multifamily and condominiums – have continued strong right into 2005,” according to the study. “Families purchasing a primary residence continue to dominate the market. It is clear that homebuyers are doing whatever is necessary to acquire their first home or trade up to a more desirable home. This includes compromising on type of location of the property, assuming increasing debt burdens and/or turning to riskier types of financing.”
The reason buyers are willing to do this may be one of the oldest mantras in the real estate business: location, location, location.
“I think that there are some places where people choose to live and accept being house poor,” said Heudorfer. “They’ll trade off where they can to live where they want to. They’ll trade off the amount of the house, the distance they commute, the amenity package they’re offered. Places like Manhattan and Silicon Valley have that reputation, but it’s evident that now Boston can be counted among them.”
Perhaps because people are willing to compromise in order to find a home, homeowner vacancy rates fell to 0.5 percent in 2004, as compared to a normal level of 2 percent and a national average of 1.6 percent, according to the study.
‘A Housing Crisis’
In the face of such high prices and low vacancy rates, an increase in production is welcome news. The number of building permits in the area increased by 12 percent in 2004, and the number of permits for single-family homes increased for the first time since 1998, from 6,020 to 7,000 between 2003 and 2004.
However, this jump does little to put a dent in the current dearth of supply or work to combat elevated home prices, though it may help to dispel predictions of a real estate bubble in the Bay State.
“There have been newspaper reports of a softening of house prices recently, but that will not bring relief for those who are being priced out of the market,” said Barry Bluestone, coauthor of the report and head of the Center for Urban and Regional Policy at Northeastern University, in a prepared statement. “Because production has been so limited and vacancy rates are well below normal, it is unlikely that prices will plummet Â… Here, housing will remain out of reach for vast numbers of households in Greater Boston.”
One reason that there may be no bursting of the real estate market is the very thing that keeps prices high – a lack of housing stock.
“I think people are concerned with facing rising prices, but what argues against a huge downfall in prices is that we’re not overbuilding,” said Heudorfer.
As was reported earlier this year by the U.S. Census, Massachusetts was the only state in the nation to lose population in 2004. The Housing Report Card notes that young skilled residents in particular are leaving the state in droves. The number of inhabitants between the ages of 20 and 24 decreased by 11.5 percent in the state, while that age group increased by 5.6 percent in the nation as a whole.
“This is not just a story about equity. It is about the future prosperity of the region. We are losing exactly the young men and women we need to help our economy to grow,” said Bluestone. “Why would they remain here and struggle to find affordable housing when they can move to Chapel Hill, [N.C.], and have a substantially higher standard of living on the same or lower income than they now get in Massachusetts?”
With between 31,000 and 33,000 annual arrivals between 2001 and 2004, net foreign immigration to the Greater Boston area remained steady in recent years. However, domestic net migration from the city has increased dramatically from 14,222 in 2001 to more than 58,000 in 2004.
Some believe that the loss in numbers may actually help loosen the strangled supply of housing in the state, although other negative consequences are also a possibility.
“Continued out-migration may solve the housing problem by reducing demand. But, the cost to the commonwealth’s long-term prosperity of losing its workforce is practically incalculable,” read the study.
A more stable solution to the housing crunch is an increase in production of affordable housing, which continued to improve in 2004. More than 2,000 units of affordable housing were added to the region. Chapter 40B was credited for a great deal of the units produced, particularly outside the city of Boston, where more than 80 percent of new units were the result of Chapter 40B, the state’s comprehensive permit law. Sometimes referred to as an anti-snob zoning law, Chapter 40B encourages development of affordable housing in communities where less then 10 percent of the housing stock is affordable.
“This report demonstrates in clear terms the importance of Chapter 40B as a way to increase affordable housing opportunities in Boston’s suburbs,” said Aaron Gornstein, executive director of the Citizens’ Housing and Planning Association, in a prepared statement.
Chapter 40B production has gained increasing significance in Massachusetts due to a decline in traditional state and federal funding for affordable housing in 2004. In order to combat the decrease, many area legislators and affordable housing activist are encouraging the enactment of Chapter 40S, which would compensate communities that choose to create smart-growth housing for resulting school costs. The hope is that when pardoned from this financial burden, a significant roadblock would be cleared on the way to increasing new affordable housing stock.
“Our housing problem is rapidly becoming a housing crisis,” said Paul Grogan, president and chief executive officer of the Boston Foundation, in a prepared statement. “But we know what has to happen next to begin to fix the situation – enact [Chapter] 40S so that we stop punishing area communities for allowing new development. In the big picture, we know we have to find the political and civic will to solve this problem and provide homes for the rising generation. The alternative is that Greater Boston faces slow and certain economic suicide.”
