Boston Foundation Housing Report Card 2009 tracks impact of the global financial crisis on Greater Boston

Boston – The Boston Foundation released its seventh annual Greater Boston Housing Report Card report today at an Understanding Boston Forum. The report was prepared by the Dukakis Center for Urban and Regional Policy at Northeastern University for the Foundation and for the Citizens’ Housing and Planning Association (CHAPA).

“Despite a significant drop in housing prices, the key finding of our research is that Greater Boston is less affordable today than it was a year ago, compared to its leading competitor cities,” said Barry Bluestone, Director of the Dukakis Center and lead author of the report. “The actual price of a home here may be lower than it was a year ago, but the region as a whole is more expensive than the urban areas that compete directly with Greater Boston for skilled and educated workers.”

At the same time, rents have increased in the region. Today Greater Boston is the second most expensive city for renters in the nation, tied with San Francisco. Only San Diego costs more for rentals.

“This is a sobering report with grave implications for the economic road ahead in the Commonwealth,” said Paul S. Grogan, President and CEO of the Boston Foundation. “If we price ourselves out of the market for young talent, we will lose the population we most need to thrive. And the impact of the economic crisis on residents who are the least well off must be a concern to all of us in the region.”

The Housing Report Card serves as an economic review of the region as well as a research report on the state of housing costs and supply, and the news is largely negative in this area, as well. While the drop in employment has lessened in Massachusetts in recent months—including an actual uptick in April—a net decrease of 3.2 percent in employment remains compared to last year.

Only the Education, Health Services and Government sectors show any growth in recent months.

Not all the news is negative.
A wide-spread cause of concern in recent years has been the outward migration of area residents, as young people in particular left for parts of the country where prices are lower. That outflow has been roughly balanced by the immigration from around the world to Boston, but resulted in a loss of a key productive element: young, well-trained and well-educated workers. According to the report, the total population has actually increased since 2006, after being largely stable since the turn of the century. Between 2006 and 2007, the population increased by nearly 26,000, and by 39,000 by 2008. Current population for the region including Essex, Middlesex, Norfolk, Plymouth and Suffolk counties has risen to a current total of just over 4.1 million in 2008, an increase of 2.23 percent since 2000.

And there have been modest improvements in the Massachusetts economy recently. Housing prices appear to have bottomed out and have actually risen above that bottom.

The report concludes on a fairly optimistic note, suggesting that the worst of the economic downturn is over for Massachusetts. The authors of the report expect to see enough of an economic recovery through 2009 and into 2010 to once again underscore the lack of adequate housing supply and spark further increase in housing costs—a long-term threat to the region’s economic well being.

Housing production drops sharply
One theme of the report is the scarcity of new housing in the region and the relationship between short supply and high prices. In the past year, as economic markets were roiled, the volume of housing starts declined precipitously.  Using projections of current trends, the Dukakis Center predicts the total number of permitted units of new housing in the Greater Boston region will be a mere 3,500 for the entire year. That is a significant decline from 2005, the peak of housing permitting, when more than 15,000 units were approved, a drop of about 77 percent.

The largest reduction in housing production lies with multi-family buildings. In 2008, the number of multi-family units permitted in Boston alone dropped by more than 50 percent compared to the previous year. Meanwhile, 122 municipalities in the region permitted no new structures at all, the largest number of communities with zero growth in multi-family housing since the Dukakis Center began to tack this information in 2000.

Compared to other cities in the country, however, Greater Boston has actually fared better during the crisis of the past year, according to the report. In large part this reflects the fact that the permitting process is typically longer and more tortuous in Massachusetts. While that has historically served as an impediment to increasing the basic supply of housing needed in the area, it has served as a protection of sorts in recent months against the precipitous decline in housing production in other areas. In aggregate, while Greater Boston saw a decline in permitting of all types by approximately 75 percent in the past year, Miami, Las Vegas and Minneapolis-St. Paul have each recorded drops of about 90 percent.

Housing prices droop, rents rise
One of the significant trends tracked by the Report is the increase in rents in the region. After a modest increase before the third quarter of 2005, rents rose sharply as housing prices softened, and that pattern continued through the recession. Between the third quarter of 2005 and the third quarter of 2008, asking rents in Greater Boston rose by 12 percent on average. Only in the first quarter of 2009 did rents recede. Through the second quarter of the current year, rents have fallen but by less than 1 percent. The disconnect between the rising price of apartments and the falling price of housing are closely related according to the researchers. Low interest rates, easy credit and subprime mortgages dramatically lowered the barriers to home purchasing, forcing home prices upward as the supply continued to be constricted and easing pressure on rental homes.

That process reversed as the economic crisis enlarged. Foreclosure forced many residents out of houses and into apartments and the end of easy credit barred others from pursuing home ownership, adding pressure to apartments. At the same time, as has been seen, construction of multi-family units has plunged, further restricting supply.

Signs of improvement
The apparent bottoming out of the housing crisis across the nation suggests that the worst aspect of the recent downturn may be coming to an end. Home prices have stopped their decline, the pace of growing unemployment has slowed—and there has been actual (if modest) growth in jobs in Massachusetts within the past seven months.

But Bluestone and his team predict that unless housing production increases to match rising demand as the economy improves, Greater Boston will once more be at risk of seeing an upward spiral in home prices and rents putting Greater Boston right back where we started—as one of the most expensive places to live in the country.

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The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of $695 million.  In Fiscal Year 2009, the Foundation and its donors made $86 million in grants to nonprofit organizations and received gifts of over $72 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.