The Massachusetts economy may be booming now, but another key indicator is surprisingly headed down: new home construction.
The number of new homes built in the Bay State barely increased in 2014 and is down for the first three months of 2015 as well, federal stats on building permits show.
New home construction is now half or less what it was back in 2005 and 2006, the peak of the last real estate boom.
Don’t blame it on demand – home prices are soaring, open houses are packed and bidding wars are par for the course inside 128. And anyone who is not completely out to lunch knows there is a severe shortage of all types of housing right now.
Rather, the dwindling number of single-family homes points to a much more serious and deeper malaise affecting the housing market, especially in densely packed, and ever pricier, Greater Boston.
“In theory, 2014 should have better than 2013, but it wasn’t,” said Jeff Rhuda, director of business development at Symes, a North Shore home builder.  “You have a recovering economy, but I think 2015 will end up below 2014.”
“It is going to get worse,” he added.
The numbers are certainly startling, coming at a time when our state’s fast-growing tech and life science sectors are sucking up talent from across the country and Boston’s population is headed for the 700,000 mark.
Builders took out just 1,051 building permits for single-family homes during the first three months of the year, a 16 percent drop over the same period last year, which, in turn, was down, albeit slightly, from 2012, U.S. Census Bureau stats show.
And it was 35 percent of the number of permits that were issued back during the same period in 2006, at the height of the last real estate boom.

Scott Van Voorhis

In fact, the 6,477 building permits issued for new homes across Massachusetts in 2014, one of the best years since the Great Recession, was less than half the 2006 total of 14,585 permits, federal stats show.
So what’s behind this odd and contradictory trend?
Certainly the decline can’t be blamed on a lack of demand.
The soaring prices for single-family homes, especially within 128, refute any idea that the classic Colonial or Cape is no longer desirable, especially if it’s brand spanking new.
Just about any home in half-decent shape within a half-hour drive of Boston will attract a horde of bidders, with new construction carrying a premium.
Nor is the drop in home construction caused by Millennials wanting to hang out in cool downtown rentals.
Certainly there are a lot more apartments are being built now than single-family homes, and that’s a notable change.
Developers pulled permits for 2,370 new apartments and condos in the Boston area during the first three months of the year, compared to just 1,050 for single family homes.
However, while the number of new towers and suburban rental developments are on the rise, they have yet to get back to the level of construction activity seen a decade ago.
New condo and apartment construction so far in 2015 is still a good 33 percent off its 2006 peak, according to Census Bureau numbers.
So it’s not dropping demand or lifestyle changes that are driving the numbers.
Instead, it is a case, on a grand scale, of developers simply unable to meet pent-up demand for new housing of all types, but especially single-family homes,
Some of that has to do with geography.
The strongest demand right now, whether it’s homes or apartments, is clearly inside the 128 beltway and just beyond it, with prices dropping off as you hit 495 and head west.
The towns and neighborhoods inside the 128 beltway are some of the most densely developed and populated as well.
There is a steady stream of new homes being built in pricey Wellesley, Needham and Newton, yet almost involve the teardowns of older and smaller homes in order to get at the land beneath.
However, even when there is developable land, local officials have made it increasingly hard to build on.
It’s not just ridiculous rules like one or two acre zoning, which makes it all but impossible for developers to do anything but build a few, large and obscenely expensive homes on sprawling lots.
Rather, suburban and town officials have become adept at using wetlands and septic regulations to box out new development, adopting rules often far tougher than what the state recommends.
It is an increasingly difficult environment for home builders to operate in, notes Rhuda, a veteran local builder and developer.
Smaller builders have traditionally dominated the market in Massachusetts, but it can cost $10,000 in legal fees and other expenses related to the permitting process for each house built, he points out.
That has hit the smaller players the hardest, for it no longer works to build just 10 or 15 homes a year when the upfront costs are that high. Smaller and mid-size firms also have less ability to ride out lengthy local reviews that can drag on for months if a couple of ornery neighbors take a disliking to the proposal, Rhuda explains.
That, in turn, is taking its toll on the industry, driving out smaller builders and driving down the number of homes that get built.  And all the while, prices are rising to ever more unaffordable heights.
You don’t have to be a rocket scientist to figure out that something is really screwed up with this picture.