Boston Housing Is More Expensive Than Ever and It’s Partially Our Fault
Boston’s housing crunch has been exacerbated by a strong economy, a rapidly growing population, out of control construction costs and the inability of developers to keep pace with demand, according to the 13th Annual Greater Boston Housing Report Card.
This cocktail of economic factors has forced developers in the region to build housing on the far extremes of the income scale, leaving Boston’s middle class high and dry. Restrictionist zoning regulations combined with handwringing from NIMBYs over height, density, a scarcity of parking, and an influx of outsiders have also contributed to the housing crunch. The Boston Foundation report paints a bleak picture for solving this problem in the short or long term:
We have failed to meet housing production targets because there is no way to do so given the high cost of producing housing for working and middle-income households. In part, this is because of the extreme barriers to new construction, especially in the form of severely restrictive zoning at the local level across much of Massachusetts. The cost of developing new housing requires a price point or rent beyond the pocketbooks of such households and therefore developers only produce such housing, in quite limited numbers, when they are required to do so by so-called “inclusionary zoning” regulations or when they are able to secure limited public funding and subsidies to support affordability. The very high cost of land and site preparation, major contributors to prohibitive total development costs, will not come down until zoning restrictions are relaxed.
The longer this focus on high end and heavily subsidized low end development continues, the more likely it is Boston becomes a polarized city of haves and have nots, with the worker bees who power the city’s guts driven farther and farther out of the city’s core.
In 2015, Boston is on pace to issue the most number of housing permits since 2005, but it’s still nowhere near where the city needs to be in order to keep up with the soaring demand. Demand has skyrocketed, particularly in the last five years, while development has slowly chugged along until recently. The high-rises you see going up around the city are the kind of housing the city needs, but there aren’t enough of them in the pipeline to keep up with demand.
The basic economics of supply and demand are at play here. The surge in demand for housing combined with the lack of supply has contributed to plunging vacancy rates and soaring housing costs. Homeownership vacancy rates for 2015 in Boston are 0.7 percent, well off the national average of 1.9 percent. The typical homeowner in Greater Boston pays a median price of $405,000 to live in here in 2015—that’s a 52 percent increase since 2000. Meanwhile, the region’s incomes have increased by just 34 percent.
The situation for renters is even worse. In 2015, the vacancy rate for rental units in Greater Boston is 2.6 percent, while the national average is 7.3 percent. This has driven up the average monthly rent for a two-bedroom in Greater Boston to $2,602, a 42 percent increase from just 2009. Even with all the new units coming on the market, this increase in price is unlikely to let up any time soon, because those new units are expensive to build, too.
Development costs, the report noted, have increased significantly since the mid-2000s, making it not financially viable for builders to construct housing that middle income residents can afford unless it’s done at a massive scale, something neighborhoods are always wary of. Construction costs have steadily increased in urban areas, but the major increase in development costs is attributable to the rising cost of land acquisition, which has soared by 41.6 percent in less than a decade.
The report found that due to the steady increase in construction costs and the soaring demand for land, large-scale housing developments are the only way to create more housing for middle income families, as it dramatically lowers the construction cost per unit.
Indeed, our analysis suggests that developments with fewer than 30 units cost, on average, in excess of $263 per square foot to build while large projects with 151 units or more cost “only” $164 per square foot. Clearly, making it possible to build much larger housing projects could reduce the cost of development significantly.
Again, we’re back to what many have said all along: height and density are a key ingredient to lowering the cost of housing in Boston, but neighborhoods and communities across the region continue to resist.
As such, under current conditions it is virtually impossible for supply to match demand and therefore the vicious cycle of price appreciation and rent escalation in Greater Boston is fundamentally unmanageable under current economic and political conditions.
The new Boston Foundation report is VERY depressing, but it’s not all bad, as developers are tailoring their development patterns to the changing demographic demands from urban dwellers. More than two-third of permits issued in 2015 are for “multi-family developments with five or more units.” This is a major shift from 2000, when only a quarter of permits in Boston were for multi-family developments and two-thirds were for single family housing.
The report came away with eight steps to solve this problem—some of them realistic, some of them not, and some that will be like banging your head against a wall for a minute, stopping, and saying, “Wow, it feels so good when you stop.”
1. Encourage larger housing projects to take advantage of economies of scale in construction
2. Encourage zoning for multi-family housing at higher density
3. Create incentives for communities, housing authorities, nonprofit organizations and businesses to donate land for affordable and mixed-income housing
4. Push for local zoning reform more forcefully
5. Encourage innovation in the design of more efficient housing units and buildings including such projects as the Millennial Village for young professionals in order to reduce price pressure on the older housing stock
6. Create incentives for the production of more affordable modular housing
7. Encourage labor agreements for affordable and mixed-income housing
8. Encourage the appropriation of more public funding for affordable housing developments
….
Only by taking aggressive action now to find innovative solutions to the high cost of housing development can Greater Boston bring supply into accord with demand and thereby slow the increase in housing costs. Until then, housing will become more and more unaffordable for all but the wealthy.
Boston is not immune from outside economic forces, but the city has done itself no favors by imposing restrictionist zoning policies that have limited height and density while extracting little from developers. It will take a massive sea change in local attitudes and ways of thinking about what Boston should be in order to improve the housing situation. Boston can either move forward and adjust to the changing market or dig in its heels as the market makes the change for the city on its own terms.
