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Opinion: Northeastern's Bluestone lists ways to reverse housing crisis

March 24, 2003
Why Your Home Costs So Much

Unraveling Boston’s housing puzzle. By Barry Bluestone

Illustration of homebuyersFor those of us who own a home in the Boston area—or in one of many other metropolitan regions around the country—the last few years have proved lucrative. Even if our 401(k) plans and stock portfolios took a beating in the market, these losses were offset by an extraordinary appreciation in the value of our homes.

Between 1998 and 2001, the median sales price of greater Boston’s single-family homes rose more than 50 percent, from $198,500 to $298,350. In Weston, at the high end of the spectrum, the 2001 median sales price just missed the $1 million mark. But even in working-class communities like Somerville and Lawrence, prices rose 60 percent or more, and in some towns, such as Revere, Everett, and Chelsea, the jump was as much as 129 percent.

The skyrocketing appreciation was terrific if you wanted to sell your home, particularly if you were pulling up stakes and moving to a less expensive neighborhood—say in, oh, Wyoming.

But if you were a first-time homebuyer, you found yourself increasingly priced out of the market, unless you were fairly well-heeled, or willing to devote at least half of your family income to mortgage payments.

For renters, the picture was not much better. In 2001, the median advertised monthly rent for a two-bedroom Boston apartment was $1,700. At that price, to avoid spending more than 30 percent of gross annual income on rent, a family needed a wage earner who made at least $34 an hour, six times the minimum wage. In Winchester, Medford, Melrose, and Malden, rents increased 50 percent or more in just three years.

The Greater Boston Housing Report Card 2002—compiled by Northeastern’s Center for Urban and Regional Policy (CURP), with support from the Boston Foundation and Citizens’ Housing and Planning Association—indicates there’s little moderation in sight. Even with the cooling economy and rising unemployment, housing prices and rents continued to increase last year, except at the very top end of the market.

What created the price and rent explosion? According to the standard model of supply and demand, when prices rise—particularly when they rise steeply—producers raise their output to match demand. Increased supply moderates further increases in price, bringing some semblance of stability to the market. If the demand for Chevy Trailblazers increases, for instance, you can count on General Motors ramping up production to meet it.

Yet this principle did not hold true for the greater Boston housing market. Despite booming prices and rents, the Report Card shows that new housing production actually declined. From 1995 to 1999, an average of 8,460 new housing units were constructed annually. From 2000 through early 2002, production averaged only 8,320 units a year. (According to an earlier CURP report, this production rate would have had to nearly double for prices and rents to stabilize.)

Ironically, market-rate housing—new units built without subsidy for middle-income families—was hardest hit. Production fell by over 10 percent in this sector. A slight uptick in subsidized housing and university residence-hall construction kept the overall production numbers from tumbling even lower.

With scant new housing and a higher number of households in the metropolitan area, the few single-family houses and apartment units that came on the market were snapped up. The vacancy rate for owner-occupied housing fell to just 0.6 percent, compared with a more normal 1.7 percent in 1990. Vacancies in rental units fell from 6.7 to 2.7 percent. Owners were in the catbird seat; houses sold at above their initial offering prices, and landlords could boost rents without worrying about empty units.

Clearly, the Boston housing market has not had the normal supply response to an overwhelming demand. The $64,000 question, though, is why not? Why would general contracting be so different from General Motors?

The best answer includes a rogue’s gallery of reasons. Boston probably has more barriers to housing construction than any other area in the nation. So, with a tip of my hat to David Letterman, hereare my Top Ten Reasons Why Boston Homes Cost So Much:

10. Limited land availability prevents large developments. We are definitely not Wyoming, which has vast amounts of undeveloped land for new construction.

9. Expensive construction materials make affordable housing unaffordable. Have you checked out the cost of a two-by-four at Home Depot lately?

8. Labor costs are high. The Big Dig has attracted most of the region’s construction workers. We now pay Big Dig prices to excavate foundations for single-family homes.

7. “Soft” costs are killing developers. State and local red tape, though a lawyer’s dream, drives up the cost and the time of going from drawing blueprints to pouring cement.

6. Building codes are inconsistent and too strict. They now do more to prevent new housing than to protect residents’ safety.

5. “Snob” zoning laws restrict what housing can be built where. It’s not easy to make townhouses on two-acre lots affordable.

4. Prop. 2-1/2 limits the revenues generated by housing. Property taxes don’t cover the costs of public schools and new sewers anymore. Little wonder that towns love senior citizens and are not eager to create housing for families with school-age kids.

3. Government subsidies for new housing are drying up. In real dollars, combined state and federal housing expenditures in Massachusetts have shrunk from $800 million in 1989 to just a bit over $500 million today.

2. Politicians haven’t responded. Though our fearless leaders bemoan the housing crisis, budget constraints and constituent complaints keep them from acting.

1. NIMBYism rules. We all want housing built to keep the Commonwealth economically viable, just Not In My Back Yard. Hence, nearly every community fights new development, as though a hundred units of new housing would destroy the neighborhood.

So what can be done? Solutions to Boston’s housing crisis do exist; they just require innovative practices, and some added cash. Among them: Zoning regulations that encourage denser development around transit-centered nodes. A streamlined building-permit process that reduces soft costs and makes construction materials less expensive. Linkage fees, which tie new commercial development to a local housing trust fund. Employers that provide housing assistance to employees. Churches that donate abandoned property for housing development.

Local governments could assist in the construction of housing for their own employees, the men and women who teach the community’s children, ensure safety, and keep the neighborhoods clean. State government could offer “good neighbor” bonuses, or added revenue sharing, to communities that build affordable housing. It could also appoint a housing czar, designate surplus state-owned land for home construction, or enact housing tax credits. The federal government could create a trust fund to underwrite affordable-housing subsidies.

For its part, Northeastern has implemented measures other universities may consider adopting. Its aggressive residence-hall building program is taking pressure off the local rental market, and its nationally acclaimed Davenport Commons provides affordable housing for Boston residents. CURP’s World-Class Housing Collaborative combines the efforts of faculty and students from architecture, law, engineering, business, and the social sciences to help neighborhood groups convert housing dreams into reality.

Boston’s housing situation is a complicated but not insurmountable problem. We could do a lot to ease the crunch, if only we had the will, the ingenuity, and a bit of the wallet.

Barry Bluestone is the Stearns Trustee Professor of Political Economy and the director of the Center for Urban and Regional Policy.
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