Boston – The fifth annual survey of the state of housing in Greater Boston provides a sobering overview of the region’s economy at a time when stresses—eroding home values, a tighter mortgage market, flat or falling incomes and a sharp decline in housing starts—add up to a “perfect housing storm,” according to Barry Bluestone, a co-author of the report.
“The new data make it clear that even while slipping values threaten many area residents’ sense of wellbeing, the cost of housing remains out of reach for young families and new members of our workforce,” said Bluestone, who is Dean of the School of Social Sciences, Urban Affairs and Public Policy at Northeastern University, and a founding member of the Economic Policy Institute, a national think tank based in Washington, D.C. “The result is a pervasive anxiety, not just about the housing market but more widely about the vitality and direction of the regional economy. The real news here is stagnating income, which has made lower housing prices meaningless for those boxed out of the market.”
The report describes a year that was broadly negative on the housing front. Production fell sharply with the number of housing permits in Greater Boston dropping of by 12 percent in 2006, and with a sharper drop projected for 2007. Rents, already among the highest in the nation, rose, again putting pressure on the area’s most vulnerable residents.
Still, there are two pieces of more positive news. There is a growing number of housing units in the pipeline as a result of legislation that uses zoning strategies to encourage building affordable housing. Moreover, the state government is providing more financial support for housing, after several years of declining support.
“This report is a wake-up call for all of us,” said Paul S. Grogan, President and CEO of the Boston Foundation, which has commissioned this annual housing report card since 2003. “The regional housing market has threatened our long-term prospects for prosperity in recent years, driving away the young workers we need to sustain our knowledge economy. The report underscores just how damaging this population and employment loss can be.”
Turmoil in the mortgage markets, a national news story in recent months, is hitting the Greater Boston region harshly, especially in minority neighborhoods.
“The subprime mortgage meltdown has reached Greater Boston,” said Bonnie Huedorfer, co-author of the report. “Because this is disproportionately affecting minority homeowners—and in Greater Boston, minority homeowners are concentrated in specific towns and neighborhoods in Boston—the impact could be severe. African American and Latino communities will be especially hard hit.”
Economic activity in the Commonwealth is meeting national levels for the first time in five years—in large part reflecting a slowdown in the national economy rather than robust activity here. Approximately 35,000 new jobs in 2006 and 29,900 new jobs in the first half of 2007 add up to more than 100,000 fewer people at work here today than in February 2001, the peak before the start of the recent recession. Estimates are that earlier levels of employment will not be reached here until 2011.
On a positive note, after back-to-back years of population loss, Massachusetts witnessed an incremental increase in the year ending in June 2006 and the state population is currently approximately 2.2 percent higher than it was at the time of the census in 2000. Growth was especially sluggish in the 161 towns and cities covered by the Housing Report Card, with an increase of only 1.1 percent over the same time period. Of equal importance to the relatively flat population numbers, income growth has stagnated here and remains slower than for the rest of the country. This intensifies the challenge many families and new workers have paying for housing, even as the median price of homes in the region have declined slightly.
Production down sharply
A secondary news headline from the current Report Card relates to the sharp drop in housing starts. Single family housing production experienced the sharpest drop falling more than 25 percent from the year before. This reflects a national trend—however the local drop-off is significantly more intense than the national decline of 15 percent, year over year.
An even sharper drop in permits is projected for 2007. Early indications predict a decline in single family housing starts of at least 29 percent in the region, and multifamily housing starts, which declined 2 percent in 2006 are already down 14 percent for the first part of 2007. After important gains in housing production in recent years, researchers expect 2007 will see the number of single family home permitted at its lowest level in at least 28 years.
Multifamily, student housing expansion
Despite the drop in absolute terms, multifamily housing starts posted the second best performance in 20 years in 2006. And much of the new construction took place in so-called “Smart Growth” locations—formerly vacant buildings and underused sites in town and city centers, sites near existing transportation lines and commuter corridors. Student housing has also increased significantly, easing the pressure on communities where local residents compete with students for a limited supply of housing. In 2006 and the first quarter of 2007, construction began on more than 3,200 new students units, the equivalent of about 812 new apartments.
A tight rental market tightens further
The general decline in rents experienced from 2001 to 2004 has ended. Rents have stabilized or are on the rise. With rent levels already among the highest in the nation and vacancies at normal levels, it is unlikely that rents will drop in any meaningful amount from current high levels. That indicates distress for area renters at the low end of the pay scale. The proportion of renter households paying more than 30 percent of their income for housing in Greater Boston now exceeds 50 percent while one in four (25 percent) of renters pay more than half their incomes in rent. Massachusetts now ranks third in an assessment of least affordable rental markets, after Hawaii and California—according to the National Low Income Coalition.
The subprime mortgage bust
Between 2001 and 2006, the rate of prime mortgage lending increased by 28 percent in Massachusetts. During that same time period, the rate of subprime lending in the Commonwealth increased by almost 700 percent. These loans appear to have targeted vulnerable low-income and ethnic minority populations, with a sharp increase in loans to black and Latino homeowners in 2005, while loans to white and Asian homeowners dropped during the same time period. These loans are geographically clustered. Subprime lenders accounted for 16.2 percent of total home-purchase loans in the 161 Greater Boston towns and cities included in this study, but include more than one-third of all loans in Everett, Revere, Chelsea, Randolph, Lynn and in specific Boston Neighborhoods with substantial percentages of Black and Latino residents.
Increase in importance of 40B, 40R
As the production of housing declined, the role of 40B became more important, providing developers with comprehensive building permits for projects including at least 20-25 percent affordable housing in communities where less than 10 percent of local housing is deemed affordable. Between 2002 and 2005, 40B’s accounted for fully 73 percent of new affordable housing units built outside the City of Boston. Also, in 2006, the first affordable units in 40R Smart Growth development districts in Chelsea and Haverhill began construction. (40R provides a local zoning override for “Smart Growth” developments.)
A serious concern regarding the maintenance and preservation of existing public and subsidized housing continues, as Boston, Brookline, Somerville, Braintree and Andover all lost units to subsidy programs initiated between 1965 and 1985. These losses typically result when property owners opt out of subsidy programs, moving their units to market rates. In 2006, contending that state-funded public housing inventory was underfunded , Housing Authorities in Cambridge, Brookline and Boston filed suit in Suffolk Superior Court to compel the Commonwealth to meet its obligations.
Septic systems pose a growing challenge
One barrier to greater supply of housing in the suburban part of Greater Boston is the region’s reliance on private septic systems, according to the report. Typically land-intensive, these systems require large lot sizes that encourage the construction of high-end housing. Fully 42 of the towns in Greater Boston have no public sewer at all and another 17 communities have public systems that serve less than 25 percent of the community. Among major metropolitan areas in the country, only Providence, Rhode Island, and Birmingham, Alabama, are more dependent on private sewer systems.
The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of almost $900 million. In 2007, the Foundation and its donors made more than $92 million in grants to nonprofit organizations and received gifts of $90 million. The Foundation is made up of some 900 separate charitable funds established by donors either for the general benefit of the community or for special purposes. The Boston Foundation also serves as a major civic leader, provider of information, convener, and sponsor of special initiatives designed to address the community’s and region’s most pressing challenges. For more information about the Boston Foundation, visit www.tbf.org or call 617-338-1700