Greater Boston home prices, construction rebound, but affordability challenge looms

October 10, 2013

Greater Boston Housing Report Card 2013 finds opportunity for smart growth, zoning to meet need for middle-class housing

  2013 Greater Boston Housing Report Card cover
  Download a PDF of the Greater Boston Housing Report Card 2013.
– The Greater Boston housing market has continued to rebound in 2013, with rising home prices, increased housing production and lower foreclosures, but a lack of affordable housing could undermine the recovery, according to the Greater Boston Housing Report Card 2013: What Follows the Housing Recovery. The new report, 11th in the annual series, was released today in an Understanding Boston forum at the Boston Foundation.

Written by Professor Barry Bluestone and his team from the Dukakis Center for Urban and Regional Policy at Northeastern University, the report finds while housing affordability remains a major issue, especially for renters, a number of Massachusetts communities are using zoning changes and incentives provided by the state’s Chapter 40R legislation to create more affordable transit-oriented developments.

“As Professor Bluestone eloquently notes, the problem of housing affordability is driven in part by economic factors, including stagnant household incomes and a widening disparity between the well-to-do and those of lesser means,” said Paul S. Grogan, President and CEO of the Boston Foundation. “But solving it requires us to use the tools we have at hand, such as 40R, to create housing that is more affordable and appeals to the sensibilities and needs of today’s working families.”

2013: A Year of Recovery

The 2013 Housing Report Card highlights reasons for optimism for a continued recovery in the Greater Boston housing market. Housing sales are projected to end 2013 at their highest level since 2005 in Massaschusetts, and condominium sales are expected to be at a level not seen since 2008. But it is the sharp increase in building permits that underscores the market’s turnaround, according to Professor Bluestone, who estimates more than 11,000 units will be permitted in 2013, nearly double the construction permits pulled just two years ago.

The growth in permits is especially marked in construction of multi-unit housing, with more than 7,000 units permitted in 5+ unit buildings in 2013 – triple the number in 2011. Single-family housing, while growing, is doing so at a slower rate – up 38 percent from 2011.

The Affordability Crunch

The positive signs for the market may mask some of the challenges it faces moving forward. Boston remains one of the most expensive cities in the country for both renters and homeowners, and larger economic forces could make the recovery difficult to sustain on a broad level. The report authors cite data that show since 2005 the overall cost of living in Greater Boston—including the cost of housing, health care, transportation, child care, other necessities and taxes for working families with children—has increased twice as fast as median homeowner household income and three times faster than the median income of renter households.

Exacerbating that challenge is the widening disparity among Greater Boston households, and the shrinking of the middle class in the region. Since 2005, income has grown fastest for those already at the high end of the income scale, and in Boston proper, population growth was driven over the first decade of the 21st century by sharp spikes in the number of poor (income less than half the city median) and wealthy (income over 120% of the city median). For those in the middle, Bluestone says, Boston’s housing costs have pushed them out of the city.

Changing demographics

As noted in the 2012 Housing Report Card, the changes in the marketplace are driven by demographic and market forces favoring an expansion of smaller, more transit oriented development. Massachusetts as a whole is aging, with older residents seeking to find housing more in scale with their post-family needs. Meanwhile, the new generation of younger residents, who might in the past have been the target market for larger single-family homes, are seeking out smaller, more practical rental units and condominiums nearer to transit and other more urban amenities.

Developers, seeing these changing desires, have switched rather dramatically from producing single-family homes to constructing multi-unit buildings containing rental units and condominiums. The move to construction of these smaller units has the potential to relieve some of the affordability concerns facing Greater Boston, but affordable housing growth may be impacted by rising interest rates and a stagnation of job growth in the region, say Prof. Bluestone and his team.

Chapter 40R, zoning and affordability

In 2013, Professor Bluestone and his team looked more closely at the impact, both current and potential, of Massachusetts’ Chapter 40R legislation. 40R was passed in 2004 by Massachusetts lawmakers to establish monetary incentives that encourage cities and towns to create Smart Growth Overlay Zoning Districts where denser, transit-oriented, as-of-right housing could be built. The early years of the legislation, which coincided with the bursting of the housing bubble, were unsurprisingly disappointing. Few units of housing were built under 40R, mirroring the stalling of housing construction throughout the state.

But since 2011, as the number of communities creating “smart growth” districts has risen, so too have the number of units permitted and constructed. As of August 2013, more than 1,500 units had been completed, with nearly 875 additional units under construction or awaiting the issue of building permits. Beyond that, the existing 33 Smart Growth Districts in the original 31 Chapter 40R municipalities still have room for more than 9,500 additional as-of-right housing units.

Professor Bluestone and his team found that Chapter 40R enactment was one of three important factors in the expansion of multifamily housing. The other factors include local provisions for cluster development  - residential development that contains homes closer together than allowed by the underlying zoning, in order to conserve open space, and inclusionary zoning, which allows developers to build more units on a land parcel than normally permitted, as long as the developer agrees to set aside a number of the units as affordable to low and moderate income households.

Professor Bluestone suggests adoption of cluster development, inclusionary zoning and Chapter 40R provisions in communities that have not done so will further strengthen opportunities for multifamily housing that can meet the needs of both young and Baby Boomer middle-class families in the coming decades.

The coming bubble?

Lastly, the researchers looked at whether the current run-up in prices and production could lead to another housing bubble. Professor Bluestone and his team conclude a new bubble is unlikely, citing the slow pace of economic recovery, the likelihood of a rise in mortgage rates, and perhaps most noteworthy, the desire of baby boomers to find smaller housing units, which will add to the inventory of single-family homes and put a brake on runaway prices.

“As such, despite the hot market for housing in some Greater Boston communities today, the chances of another full-blown housing bubble in the region seems remote,” says Prof. Bluestone. “Unfortunately, even without a housing price bubble, home prices in many parts of the region will remain for many households barely affordable.”


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