Wednesday, November 14, 2012, 10:27am
Even as the housing market is sluggishly beginning to turn around, the Bay State needs to start pushing for more growth, according to a new report on the state of the Greater Boston housing market from The Boston Foundation.
This year is the 10th anniversary of the foundation’s Greater Boston Housing Report Card, and the authors took the opportunity to project the region’s housing needs through 2020.
The report comes up with two scenarios for housing needs, one based on current trends continuing, and one based on the idea that Massachusetts’ relative economic strengths compared with other states will lead to stronger growth in the future. In either case, an aging population will tend to free up single-family suburban homes as older people downsize or retire elsewhere. Even so, the region will require approximately 12,000 new units of housing per year in the current trends scenario, or 19,000 in the stronger growth scenario.
That would be double or triple the average rate of new construction in Greater Boston over the past several years, which averaged 6,000 units per year from 2008 to 2010.
“Younger people are going to want more rental and condo,” said Barry Bluestone, deal of the school of urban and regional policy at Northeastern University and one of the principal authors of the report. “That’s a big number, but we’ve got to get there.”
A failure to increase the amount of new construction could make it more difficult for businesses to attract employees to the region, already the third most expensive in the country after New York and San Francisco.
There are some signs that developers are already anticipating these needs.
“If we look at the change in permitting, units are up 36 percent – but single families only up 1.6 percent, nearly flat,” with multifamily units and large apartments accounting for the bulk of the increase, Bluestone said. He hailed Gov. Deval Patrick’s announcement yesterday that the state will push for 10,000 units of new multifamily construction across the commonwealth over the next ten years.
Bluestone cautioned, however, that it was not clear what the mix of housing should be.
“Affordability has been crashing,” for younger people, since incomes haven’t kept pace with housing price increases, and younger people have considerably more student debt than previous generations, he added. Those pressures will tend to keep young people in multi-unit apartments or condos longer and make them less tolerant of high commuting costs, potentially shifting demand away from single-family homes and toward multi-unit construction in both apartments and condos.
The report made several recommendations that could help support these goals, including suggesting that the state consider taking advantage of current low rates to form a land bank to anticipate future needs and encourage the development of denser housing; forming a task force to figure out how to lower construction costs in the state; and looking at how to better accommodate Boston’s large and growing student population to help relieve pressure on the rental market. Finally, the report recommended that the state push more developers to take advantage of the 40R statute which allows for denser, transit oriented development.
‘Build What They Want’
Developers need to be alert to these trends, agreed Alicia Sasser, a senior economist with the Federal Reserve Bank of Boston. “Just because you build something, it doesn’t mean they will come. You have to build what they want,” she said.
Sasser cautioned that despite several signs of a revival in demand and improved economic conditions, there are forces potentially holding back the housing market, with tight underwriting and regulatory uncertainty conspiring to keep many potential first-time buyers out of the market.
Marie Wentling, director of product strategy at The Warren Group, Banker Tradesman’s publisher, had a mixed report, emphasizing that while the improvements in the market have continued so far this year, there remain reasons to be concerned about the number of underwater homes and the potential of foreclosures. She pointed out that during the peak of the market, when prices were near their highest levels, mortgage originations were nearly triple their average rate, spiking over 800,000 per year. “Some of those refinances shouldn’t have been done,” she said.
Elyse Cherry, CEO of Boston Community Capital, said that the revival in the housing market is already putting pressure on efforts to help get distressed property in the hands of low income homeowners, as the price differential between foreclosed properties and normal properties is being squeezed, making distressed properties less affordable and restricting their financing options.
To read a full copy of the report, click here