Tenth annual Greater Boston Housing Report Card predicts sharp growth in demand

Report finds changing demand for housing in Greater Boston, calls for emphasis on transit-oriented, higher density development

Boston – The Greater Boston housing market will improve in coming years, but buyers and renters in 2020 may be seeking significantly different types of housing, according to projections in the Greater Boston Housing Report Card 2012: A New New Paradigm for Housing in Greater Boston, which was released today at a Boston Foundation Understanding Boston forum.

Written by Professor Barry Bluestone and his team from the Dukakis Center for Urban and Regional Policy at Northeastern University, the report is the tenth in the Boston Foundation’s Greater Boston Housing Report Card series. Using projections from the Metropolitan Area Planning Council, the report authors estimate that Greater Boston developers may need to double or even triple annual housing production to meet demand through 2020. Buyers, however, are expected to seek smaller, more transit-oriented developments, as Baby Boomers seek to downsize and new buyers look for more affordable housing that suits their smaller households.

“Once again, Professor Bluestone and his team have expertly shed light on the present and future of the Greater Boston housing market,” said Paul S. Grogan, President and CEO of the Boston Foundation. “It is a future that gives an edge to those developers and communities that recognize the possibilities for smaller, more densely- and smartly-constructed housing that satisfies the needs of a new generation of buyers. Developers, policymakers and local officials have opportunities to work together to support this emerging market by utilizing incentives and targeted investments to make this new generation of development possible.”

The current state of the Greater Boston Housing Market

After a roller coaster ride of a decade for homeowners and developers since the publication of the first Greater Boston Housing Report Card in 2002, the 2012 Report Card finds signs of optimism that the market is on the upswing. “Once again, in 2012, we see signs of recovery in the housing market along all of the standard measures we have tracked — rising home sales, low vacancy rates, recovering prices, high rents, growth in permits and a decline in foreclosures should set the stage for growth,” said Professor Bluestone. “Whether this is leading to a return to the normal patterns that have prevailed in past decades or, alternatively, whether it signals a major transformation of the Greater Boston housing market is the big question this time around.”
 
Scenarios for growth

Using data from the Metropolitan Area Planning Commission, Professor Bluestone and his team developed two possible scenarios for housing between now and 2020. The “Current Trends” forecast assumes that immigration and net domestic migration (inter-state migration) will continue at current rates through 2020. The “Stronger Growth” Scenario assumes that the Commonwealth’s economy continues to perform better than the rest of the nation, leading to greater in-migration into the state and less out-migration.

Under the “Current Trends” scenario, the total number of new households in Metro Boston is
expected to increase by 120,000 between 2010 and 2020, an average of 12,000 per year. Most of these will be young households. With vacancy rates at historically low levels, that scenario estimates that the region will need to produce at least 12,000 new units of housing each year to accommodate growth. From 2005 to 2011, annual housing production has run at half that amount – an average of 6,000 units.

Under the “Stronger Growth” scenario, the difference is more striking. In a region with continued labor and employment growth, the region would need another 191,000 units by 2020, more than triple the recent rate of output. The mix of housing in this scenario shifts as well, to one favoring the construction of more multi-family housing units.

Evolution to a new “new paradigm”

Professor Bluestone and his team find a number of reasons for this developing shift in the housing requirements of buyers as the decade unfolds. Fundamental changes in the underlying economy will combine with regional demographics and consumer behavior to drive the changes. As aging Baby Boomer homeowners downsize, they will look to smaller, more sustainable homes, moving from larger single-family homes to smaller single-family homes or condominiums.

But those smaller units will also appeal to new homeseekers, the report finds. “Young people are increasingly saddled with student debt, and while surveys indicate that younger generations still hold the concept of homeownership dear, the desire to own a home may diminish in the future as indebtedness, development patterns and commuting preferences change over time,” said Professor Bluestone. “That will almost certainly alter the types  of housing we will need over the next decade, as well as the places within the region where that housing will need to be located.”

In both scenarios, half or more of the new housing units projected for the region would not be single family homes – but multifamily housing. In current trends, about 48 percent of new households would opt for housing in multi-unit condominium or apartment complexes. That rises to 53 percent in the more robust growth scenario.

In growth, an opportunity

The emergence of the Greater Boston housing market from the doldrums of the past few years is obviously good news for developers – but those that embrace the new paradigm for housing will have opportunities that their peers might miss. Policymakers and local officials can create an environment that enhances our ability to create affordable housing to meet this expected demand.

Many of the tools are already in place. Massachusetts lawmakers passed Chapter 40R and 40S in 2004-2005 to give communities incentives to create smart growth affordable housing. Given the increase in projected housing demand and the likely shift in demand toward starter homes, multi-unit condos and rental housing, Chapter 40R can play an even stronger role in Greater Boston.

The basic idea behind 40R is that it is not so much a lack of buildable land in Massachusetts that is stifling the production of affordable housing, but rather the lack of land zoned for relatively dense multi-family and single-family housing in smart growth locations near town centers and transportation. Chapter 40R provides financial incentives for communities that will zone eligible districts as-of-right for mixed-income housing.

In a weaker economy, the ability of developers to build smart growth housing even where approved was limited. Now, as the market gets stronger, developers and communities can use 40R more widely – and policymakers have the opportunity to expand its use by:

• creating new, more permanent funding mechanisms for the Smart Growth Housing Trust Fund;
• motivating more communities and developers to adopt 40R by providing funds for planning of 40R districts;
• creating opportunities to make 40R/40S development more affordable for communities; and
• eliminating the “clawback” provisions for communities where construction does not begin within three years of the local enactment of a Chapter 40R district.

Meanwhile, Professor Bluestone sees other opportunities in the state for investment in future housing. In addition to the 40R recommendations above, the report calls for:

• The Commonwealth to take advantage of historically-low interest rates to consider investing in promising sites and buildings (such as large mill buildings) that are unlikely to be developed soon by the private sector, but are likely to be increasingly valuable in the future.
• The appointment of a blue ribbon commission to examine development costs in depth—focusing on housing supported by public funding—and provide recommendations for responsible cost-containment.
• An increased focus on the issue of student-oriented housing in Greater Boston, to encourage residence hall construction and better serve the needs of the region’s student population and ameliorate the pressures it places on the general housing supply in Greater Boston – using the concept of ‘multi-university graduate student villages’ as one possible strategy.
• The development of housing strategies that specifically address the needs of the region’s aging Baby Boomers.  This should include exploration of the types of housing that can allow people to “age in place” as well as consideration of the best ways to provide necessary social and health services as people live much longer than previously.

“This report shows that we are entering an era of opportunity when it comes to housing,” said Grogan, “but it also rightly recognizes that only by being thoughtful and strategic in our work moving forward will we be able to fully realize our potential to create housing that serves the needs of our communities and does so in ways that are smart, sustainable and create the access to transit, commerce and other needed services. We look forward to be an even greater part of the dialogue moving forward.”

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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 net assets of $850 million.  In 2011, the Foundation and its donors made almost $78 million in grants to nonprofit organizations and received gifts of $81 million. The Foundation is made up of some 850 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. 

In 2012, the Boston Foundation and The Philanthropic Initiative (TPI) merged, with TPI operating as a distinct unit of the Boston Foundation.  TPI pioneered the field of strategic philanthropic advising over 20 years ago and remains a national leader today. Through its consulting services and its work to advance the broader field of strategic philanthropy, TPI has influenced billions of dollars of giving worldwide. TPI’s Center for Global Philanthropy promotes international giving from the U.S. and indigenous philanthropy abroad. For more information about the Boston Foundation and TPI, visit www.tbf.org or call 617-338-1700.