Andrew Mikula

The Massachusetts Executive Office of Housing and Livable Communities recently released a housing needs assessment that has much to recommend it. The assessment covers everything from the longtime shortage of housing supply to the overwhelmed emergency shelter system.

However, instead of being a strong foundation for Gov. Maura Healey’s ambitious agenda to expand housing opportunity, the report’s headline figure – a statewide need for 222,000 homes – undermines her and the report’s authors’ goals by implicitly endorsing the status quo.

To arrive at 222,000, the report counts currently underhoused people and adds projected population changes. This misses the mark because it addresses only the tip of the iceberg: the people whose unmet desires for housing are obvious.

Even on its own terms, EOHLC’s approach fails: Its housing needs estimate is based on projected population changes, which in turn are based on previous housing construction. This circular logic predicts that Massachusetts needs to produce only slightly more housing in the next 10 years than the roughly 200,000 homes it built in the previous decade.

Anyone who has been watching home prices or rents in the commonwealth knows that the current trajectory is woefully insufficient.

Salim Furth

Plan Makes Fundamental Mistakes

The report goes on to insult the next generation, planning to “retain just 10% of the young people who would otherwise move out of state.”

One of us – Furth – grew up in Milton and moved out of state. His childhood friends are raising their own kids in Maryland, Texas, Georgia and Maine. The other is 27 and lives with his parents. He would gladly move out if housing were more affordable. Massachusetts has jobs for people like us – but a slight increase in construction isn’t going to make homes attainable.

More importantly, the report makes a fundamental error by ignoring prices in its calculation of needs.

Economists use prices because they reveal information about people who are otherwise invisible. The price of a house tells us not just about the winning bidder, but also about the losing bidders. A million-dollar price tag on a modest suburban home screams out the unfulfilled dreams of people who wish they could’ve lived there.

EOHLC begins by assuming that almost everyone is satisfied with their current housing. That’s far from true. Many residents are living where they can afford, not where they want. If prices were more reasonable, some would move to a bigger house or a better school district.

Authors Misunderstood Markets

The analysis proceeds by assuming that every newly-built home will be occupied by someone who is already in Massachusetts. It allocates housing needs to 6,800 households currently living in shelters, 16,000 who are doubled up with others, and a small percentage of the 400,000 adults living with their parents.

Another 73,000 homes are needed to accommodate new household formation among existing residents. And 33,000 homes are allowed for 10 percent of the young people who would otherwise have moved out of state.

Finally – and comically – the report calls for 51,000 homes to be built to increase the vacancy rate, because a moderate vacancy rate is a feature of a healthy housing market. EOHLC apparently believes that the vacancy rate will increase one-for-one with homes built for that purpose.

This utterly misunderstands how markets work. The 51,000 new homes would be eagerly rented or purchased by residents and new arrivals whose unmet housing desires EOHLC’s approach missed, leaving few vacancies behind them.

Many More Homes Needed to Compete

The appeal of EOHLC’s approach is that it zooms in to the individual level to understand housing needs. This is helpful for those requiring specific, non-market interventions, such as the chronically homeless.

For an analysis of all residents, however, urban economics offers a more robust toolkit because it uses prices to incorporate information about invisible, unmet housing desires. Gov. Healey should instruct EOHLC to revise the flawed report using that more complete toolkit.

What might a new approach look like?

First, it should set market-wide goals, such as bringing Greater Boston rents down 30 percent to match peer metros Washington, D.C. and Seattle.

One respected estimate is that if a metropolitan area adds 2 percent to its housing stock, rents will decline by 3 percent. That implies that, to reduce rents by 30 percent, the Hub and its Massachusetts suburbs would need to build about 375,000 new homes beyond those needed to absorb baseline increases in demand. The state is not a single housing market, and other regions would require additional targets.

A state housing needs assessment should serve two purposes: a sound analytic framework and a foundation for political action. The current report does neither.

If current policies are delivering almost as much housing we need, why should policymakers spend their political capital working for transit-oriented zoning, building code innovation, higher height limits or permitting reforms? Those are the kinds of policies Massachusetts needs – because our home state needs far more than 222,000 new homes by 2035.

Andrew Mikula is the senior housing fellow at the Pioneer Institute in Boston. Salim Furth is a senior research fellow with the Mercatus Center at George Mason University.