BARRY BLUESTONE
No housing bubble

Home prices are likely to dip slightly next year for the first time in more than a decade, and homeowners can expect more moderate price appreciation in the following three years, according to an economic forecast presented to Boston-area Realtors.

Following six years of double-digit appreciation, the average price of a single-family home is projected to slip from 1 percent to 3 percent in the second half of 2006, according to a nonprofit research group, and then gradually rise from 2007 to 2009.

The housing market forecast from the New England Economic Partnership was part of a presentation that economist Barry Bluestone, director of Northeastern University’s Center for Urban and Regional Policy, gave at a forum organized by the Greater Boston Association of Realtors last Wednesday.

Citing NEEP’s forecast, Bluestone said home prices will fall during the second quarter of 2006, the first actual year-over-year decline since 1992. Prices are expected to recover, rising less than 3 percent for the next three years.

That’s a drastic change from the sharp price increases the region has seen in the last few years.

The median price for a single-family home in Massachusetts reached $327,000 last year, an 11.2 percent increase from 2003, according to The Warren Group, parent company of Banker & Tradesman.

Last year’s median home price was 63 percent higher than in 2000, when the median was just $200,000.

Condo prices also have escalated. The median selling price for condos jumped 72.5 percent in the last four years, reaching $257,500 in 2004 from $149,262 in 2000.

Contradicting media reports and highly publicized projections, Bluestone said he does not see signs of a collapse in the Bay State housing market in the short term because limits on homebuilding and high construction costs have restricted housing production.

“We don’t see a housing bubble here,” Bluestone said.

Bluestone predicted that housing markets in some areas of the country where housing production has boomed and where construction costs are much lower than in New England, including Las Vegas and parts of Florida, will experience problems.

“These communities may be in real trouble,” he said.

Still, while the short-term prognosis is healthy, Bluestone was cautious about the state’s long-term outlook, noting that continued economic weakness, slow job growth and population loss could lead to much weaker housing markets in Massachusetts.

Employment in Greater Boston was still down by 160,000 jobs by the end of last year from the pre-recession peak, said Bluestone, and the state is trailing the rest of the country in job growth and economic recovery.

Job growth has been below the national level since January 2002, according to Bluestone.

Meanwhile, the median household income in Massachusetts has fallen.

The Greater Boston region was among the highest in terms of real median household income in 1998, but by 2003, the median household income dropped 2.7 percent to $58,971.

While those economic challenges are critical, said Bluestone, the state faces an even more serious problem: population loss. Massachusetts was the only state to lose population last year, and the biggest drop in population has been among people aged 20 to 34.

“There’s been this steady outflow from Massachusetts,” he said.

From 2001 to 2003, the population of 20- to 34-year-olds fell by 11 percent in Massachusetts, while at the same time it grew by 6 percent nationwide.

‘Our Big Challenge’
Many of those who are leaving the Bay State are relocating to states where the cost of living is lower, like North Carolina, Pennsylvania, Arizona, Florida and Washington.

Bluestone said a family of four needs $64,656 to pay for basic living expenses in Greater Boston, while in the Raleigh-Durham-Chapel Hill area of North Carolina – a chief competitor with the Greater Boston area for high-tech jobs – a family would only need $44,124.

High health care and daycare costs are contributing to make Greater Boston an expensive place to live, but so have surging home prices.

In 1998, 85 percent of the communities in Greater Boston had median home prices of less than $300,000. By last year, only 12 percent of the communities fell into that category, according to Bluestone.

Companies that move to North Carolina can have access to a well-trained workforce and reduce wages by 20 percent, and families who move there will still have a 20 percent better standard of living, Bluestone explained.

“You can’t compete in that type of environment,” he said.

As home prices skyrocketed, housing production fell. The number of building permits issued fell every year from 1998 to 2002.

It wasn’t until 2003 that the trend started to reverse. A total of 12,121 building permits were issued in 2003, up from 10,846 in 1998, and by last year the number had jumped to 13,556.

But permitting for single-family homes has yet to reach 1998 levels, when 8,639 single-family home permits were issued. Last year, 7,000 permits were issued for single-family homes, representing an increase from the number of such permits issued in 2001, 2002 and 2003.

In the last few years, business leaders have begun to take notice of the housing situation and the challenges it poses to the state’s economy.

“Housing has become the single most important issue of economic development in the commonwealth,” said Bluestone.

The state, and business and academic leaders, have tried to encourage communities to embrace more housing production. The Commonwealth Housing Task Force, a privately funded nonprofit group, issued a report in 2003 that helped spur the passage of a law known as Chapter 40R last year.

Under the law, cities and towns that establish special overlay zoning districts where dense mixed-income housing developments can be built in smart-growth locations, including near transportation nodes and town centers, can receive cash payments from the state.

The law calls for housing developments that include eight single-family homes per acre or 20 multifamily units an acre. At least 20 percent of all housing units created must be affordable to households earning 80 percent of the area median income.

Cities and towns can receive upfront cash payments when they establish a district and then $3,000 for each building permit that is issued.

A complementary law passed in November also would provide additional school aid to communities to cover “any incremental increase in school costs over and above the revenue collected [from the district],” explained Eleanor White, a member of the task force who is president of Housing Partners Inc., a national housing consulting firm in Watertown.

The Chapter 40R program will cost the state $1 billion over 10 years, White said, and will be funded from the sale of surplus state-owned land.

“Our big challenge in the coming year will be to get local officials to understand the benefits of passing [40R districts],” said White.

White, who has spoken to real estate developers and town leaders about the new law, said she often hears objections about Chapter 40R’s density requirements. But White often points out that the most desirable and exclusive neighborhoods – the Back Bay, Beacon Hill and North Cambridge – feature extremely dense housing.

“When people object to density, they’re really objecting to ugly,” she said. “It’s not density that’s the issue.”

In creating overlay zoning districts, cities and towns will have the ability to set design standards to prevent poorly planned housing development, she explained.

White urged Realtors to encourage municipal leaders to examine the option of setting up 40R districts. “This is a way for communities to take control of development in their towns,” she said.

White said she believes that the first overlay zoning districts to be created under Chapter 40R will probably be developer-driven, and initially, the cost of land in such districts will be high. But as more communities create districts and builders have more to choose from, land prices are likely to stabilize, she said.