BONNIE HEUDORFER
‘Cumbersome’ process

Permitting for new homes plunged in Greater Boston as developers reacted to the softening housing market, a new report shows.

The Greater Boston Housing Report Card, which will be released Thursday, also shows that housing affordability has improved in a few Boston-area communities as home sales and prices declined and the number of for-sale properties climbed.

But while the drop in new-home permits and prices mirrors what’s happening nationwide, it could spell trouble for the region’s economy in the long term if the trend isn’t reversed, according to economists and other observers.

If the economy and job growth improves significantly, housing demand will increase and new units will be needed to meet it or prices will escalate, they argue.

“The risk is, if the economy continues to move along and pick up, that we’ll be in the same position that we were in prior years, which means we won’t be able to bring new units online fast enough,” said Bonnie Heudorfer, who wrote the report.

“The permitting process is so cumbersome and the land-use controls are so fractured that our problem is when the market says ‘ooh, we need more units,’ it can be four to seven years before we get them. Nothing has happened in the last few years to change that,” she said.

The report, prepared by Northeastern University’s Center for Urban and Regional Policy, is the fifth analysis of economic trends and housing market conditions in 161 communities surrounding Boston. It will be released at a forum organized by The Boston Foundation, which along with the Boston-based Citizens’ Housing and Planning Association commissioned the report.

At the forum, a coalition of business and civic leaders known as the Commonwealth Housing Task Force is expected to unveil details of an initiative to produce smaller-sized starter homes on compact lots. The homes would be 1,700 square feet or smaller, and targeted to those earning up to 150 percent of the area median income – about $123,750 for a family.

A total of 13,759 housing permits were issued last year in the Greater Boston area, a 12 percent drop from the prior year. Of those permits, 5,429, or less than 40 percent, were for single-family homes. Single-family permitting dove 25 percent from 2005 and it’s estimated to drop even further this year. Some 4,094 single-family permits are anticipated for this year, 25 percent lower than 2006.

While single-family permitting nationwide increased 28 percent in the last 10 years, it decreased 28 percent in the Greater Boston region, the report shows.

“The production of other entry-level homes for young families is practically nonexistent in [Boston’s] close-in suburbs,” the report states.

Housing experts say the decline in permitting was anticipated because developers were in large part reacting to the correction in the residential market However, much of the housing that has been produced in Greater Boston in recent years has been luxury condominiums or age-restricted housing.

Multifamily housing development and the single-family home construction that has occurred was mainly the result of the state’s comprehensive permitting law, known as Chapter 40B, according to the report.

“Little new detached single-family housing, other than that which is age-restricted, is being built for sale at prices below $400,000 without the benefit of Chapter 40B,” the report noted.

Analysts argue that the lack of newly constructed single-family homes with modern amenities and layouts has pushed young professionals to move to other states where housing is cheaper and job opportunities exist. The region lost population for three consecutive years before a slight gain between 2005 and 2006. Since 2004, the state has lost between 50,000 and 62,000 residents annually and the largest losses have been in the 20-24 and 25-34 age ranges, according to the report.

But the report offers some good news. More Boston-area communities were considered affordable last year.

Home prices slipped in 2006 and are down this year, and the supply of unsold homes has grown. While that has created anxiety for homeowners, it has created some opportunity for home searchers.

The median single-family home price in Greater Boston was $371,000 in the first six months of 2007, 6 percent below its 2005 peak, the report shows.

In 30 out of the region’s 161 communities, the median single-family home was affordable to families earning the median household income in 2006. Forty-six communities fell into that category in the first five months of 2007, according to the report. Last year’s report identified only 19 communities that were deemed affordable.

In addition, six communities were affordable to first-time homebuyers. Last year’s report card found that no communities were affordable to first-time purchasers.

However, the report’s authors note that even though home prices have softened, the region’s housing costs and stagnating household income means that homeowners and renters are still struggling to afford housing.

“Prices have come down a little bit, but it hasn’t turned us into Indiana or Kansas or South Carolina. We’re still a high-cost area,” Heudorfer said.

‘A Generational Turnover’

Greater Boston rents have stabilized and climbed in some markets, even though vacancy rates are similar to the national average and production of new units increased. Asking rents rose 4.1 percent in 2006 with $1,644, the report revealed.

On the housing supply side, the report indicates that there could be more single-family homes available in the future because of the aging population.

“Much of the region’s housing is in the hands of an aging population: Forty-one percent of homeowners are over the age of 55, including 22 percent over 65 and 11 percent over 75. A generational turnover of tsunami proportions is inevitable, even allowing for those who wish to age in place to do so,” the report states. “Much of the stock that may become available is located in communities that boast the strongest public school systems in the state.”

Still, some observers argue that the region needs more entry-level housing, which appeals to young families.

“Affordability has improved, but not to the point where it’s stopped this drain of our young educated people,” said David Wluka, a Sharon real estate broker.

Wluka, who was part of a group working with the Commonwealth Housing Task Force on its starter-home initiative, said much of the housing that has been produced is targeted to aging empty nesters.

The permitting process and zoning, which have been identified as barriers to housing production in recent reports, haven’t changed, he said, and little housing for families has been added.

“It’s important to the overall economy that these people stay here because they contribute to the overall economy,” Wluka said.

Greater Boston’s housing production fell short of the 18,000-unit targeted goal identified by the Center for Urban and Regional Policy in its earlier report cards. Overall, the region produced 14,639 units in 2006, or 81 percent of the goal, which is lower than 2005 but higher than the previous three years.

The most improvement came in student housing. A total of 880 student housing units were created, representing 88 percent of the targeted goal of 1,000 units. That’s an improvement from 2005, when 581 student housing units – or 58 percent of the goal – were constructed.

As for market-rate housing, 11,337 units were created, or 81 percent of the targeted 14,000 goal. That’s a decline from 13,053 in 2005. A total of 2,422 subsidized units were created in 2006, which was 81 percent of the 3,000-unit goal and down from the 2,523 in 2005.

For the first time, the report includes information about the price distribution of the home sold. Sixty percent of all properties sold in Greater Boston were priced below $400,000, and nearly half sold for under $350,000. The homes priced under $400,000 were split evenly between condos and single-family homes. But more than half of the properties under $350,000 that were sold were condos.

Less than 9 percent of all single-family homes and condos sold in 2006 were priced below $250,000.

“There may not be an immediate crisis because there are more homes on the market. But you have to look at two or three years from now,” said Aaron Gornstein, executive director of Citizens’ Housing and Planning Association.

Prices, location, and the types of housing that are available must be considered, he said.

“You really have to look long-term. You don’t take a month’s snapshot and say there’s ‘X’ number of homes on the market so we don’t need any new production,” Gornstein said.

The region had a “huge shortfall in production” throughout the 1990s compared to household growth, he said, and it took several years for housing production to pick up because of the lengthy approval and permitting process. In that time, prices and rents skyrocketed.

“It takes a while to catch up from lack of production,” Gornstein said.

But some aren’t convinced that production alone will help the region.

“The affordability crisis and the production crisis are related but not entirely. To the degree that people have incomes that are dramatically lower than needed to afford housing, the production strategy alone cannot close the gap,” said Joseph Kriesberg, president of the Massachusetts Association of Community Development Corporations.

Interest rates, foreclosures, disposable income and other factors also affect affordability, Kriesberg said.

Kriesberg said zoning reform is necessary so that the right type of housing in the right locations can be produced cheaply and faster.

“The fact that the decline of production is largely the result of the softening market does not mean that ongoing zoning reform isn’t essential,” he said.