The Greater Boston Housing Report Card 2004

1
The Greater Boston Housing Report Card 2004
Bonnie Heudorfer Barry Bluestone Center for
Urban and Regional Policy Northeastern University
(CURP) The Boston Foundation Citizens Housing
and Planning Association September 2005
2
Assessing Housing Progress

• 3rd Annual Report Card on the state of housing
  in Greater
• Boston
• Response to September 2000 New Paradigm for
  Housing in
• Greater Boston study that called meeting the
  regions housing
• needs
• a moral imperative for all those who need
  decent housing
• at affordable prices and
• an economic necessity in order to sustain
  Bostons
• renaissance economy

3
Highlights from 2002 Housing Report

• During the 1990s, household growth exceeded
  housing production by more than 40 percent,
  driving prices up and vacancies down
• By 2000, average monthly rent on typical 900 sq.
  ft. apartment was 1,565. In 60 of
  municipalities surveyed advertised rents rose
  more than 30 between 1998 and 2001
• Median sales price rose 50 to 298,350 during
  the same period
• Notwithstanding skyrocketing rents and prices,
  housing production declined each year between
  1998 and 2002
• Only 12 of 161 communities had achieved 10
  threshold for affordable housing

4
Highlights from 2003 Housing Report

• Despite sluggish economy and decline in
  households, median home price increased by more
  than 9 in 2003 to 343,000
• Overall housing production was up for first time
  since 1998 multi-family housing more than
  doubled, but permitting of single family homes
  dropped to its lowest level in more than a decade
• Rents decreased modestly as the rental vacancy
  rate rose to 6 up from 4.4 in 2002 and 2.7
  in 2000 but reductions were mostly in expensive
  units
• By year end 16 communities had achieved 10
  threshold for affordable housing

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The Greater Boston Housing Report Card 2004

• This years report card evaluates the regions
  2004 performance, including
• Economic and demographic changes
• Home prices, rents and housing affordability
• New housing production
• Affordable housing production
• Public spending and support for housing
• Goals for new housing

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Economic Update

• December 2004 unemployment rate stood at 3.8,
  down from 4.5 a year earlier but, due in large
  part to 105,000 workers having left the regions
  labor force over the past 2½ years
• By year end 2004, employment in Greater Boston
  was still down by more than 160,000 from its
  pre-recession peak
• Real median household income dropped by 2.7 in
  2003 to 58,971 and only partially recovered in
  2004, rising by 2.3
• By early 2005, there were some signs of renewed
  economic activity in Massachusetts

7
Massachusetts Economic Activity Index
Source U.S. Census
8
Demographic Update

• While foreign immigration in Massachusetts
  remained at roughly 31,000 per year between 2000
  to 2004, domestic out-migration increased from
  14,000 in 2000-2001 to 59,000 in 2003-2004
  making Massachusetts the only state to lose
  population in 2004.
• The young prime working age cohorts experienced
  the largest net losses --
• Between 2001 and 2003, the 20-24 year old cohort
  declined by 11.5 while the number of 25-34 year
  olds fell by 7.2
• Nationally, the 20-24 year old cohort grew by
  5.6 while the 25-34 cohort grew by 0.7

9
Massachusetts Net Migration 2000-2004
Foreign
Domestic
Source U.S. Census
10
Population Change in Boston PMSA
Source U.S. Census
11
Cost of Living Update

• According to a new measure of living costs,
  Greater Boston has the highest cost of living of
  any metro area in the United States
• A family of four needs 64,656 to pay for the
  costs of housing, transportation, day care,
  health care, and other basic necessities
• This is more than 3,000 higher than in
  Washington, D.C 6,000 higher than in New York
  City and 7,000 more than in San Francisco
• Monthly housing costs are 40 higher than in
  Austin, Chicago, and Miami and 63 higher than in
  Raleigh-Durham-Chapel Hill

12
Total Annual Budget for Family of Four
Source Economic Policy Institute
13
Rental Vacancy Rates

• In 2000, the rental vacancy rate was less than 3
  percent, half the rate considered normal
• By 2002 with 21,000 fewer renter households and
  several thousand new units coming on line the
  rental vacancy rate had risen to 4.4 by year
  end 2003, it had reached 6
• In 2004, the rental vacancy rate remained at 6

14
Rental Vacancy Rates US v Boston PMSA
Source U.S. Census
15
Homeowner Vacancy Rates

• An increase in owner occupied households and
  continued low mortgage interest rates kept home
  sales up in 2004
• As a result of strong sales, homeowner vacancy
  rates fell to 0.5 in 2004 from 0.6 the previous
  year well below a normal 1.5 - 2 level
• This is about 1/3 the national rate

16
Homeowner Vacancy Rates US v Boston PMSA
Source U.S. Census
17
A Housing Bubble?

• The surge in housing prices in many parts of the
  country, has led to concern about irrational
  exuberance in the housing market and fears of a
  housing bubble
• But in Greater Boston, unlike many regions,
  production levels have remained modest and
  vacancy rates abnormally low
• As a result, an economic downturn or rising
  interest rates will likely lead to a slowdown in
  housing price appreciation, but a sharp
  across-the-board correction in home prices is
  unlikely

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New Housing Production Some Good News

• Building permit issuance increased by 12 in 2004
  to 13,556 after increasing by 22 in 2003
• For the first time since 1998, permits for single
  family units increased to 7,000 up from 6,020 in
  2003
• But, total permits remain well below the peak
  years of the 1970s and 1980s when more than
  20,000 units/year were permitted
• And single family permits are still well below
  the number issued annually between 1998 and 2000

19
(No Transcript)
20
Housing Units Permitted in Boston PMSA
Source U.S. Census pre-1980 compiled by BRA
Research Department
21
New Student Housing
Source Units counted in year permitted,
reported by colleges and universities
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New Affordable Housing Production
23
40B Comprehensive Permit Production
Source CURP analysis of 40B pipeline
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Chapter 40B Housing Pipeline

• At the end of 2004 there were more than 200
  housing developments in the 40B pipeline in
  Greater Boston
• 18,000 units in process at local level, Housing
  Appeals Committee or in the courts
• 9,000 units had applied to MassHousing for
  determination of site eligibility or were
  preparing to apply
• Historically, only about 60 of planned housing
  gets developed and it can take many years to
  navigate the permitting process

25
Historical Construction Costs
Source R.S. Means Historical Cost Index
26
Impact of Rising Construction Costs
Source MassHousing, based on R.S. Means indices
27
Rents and Prices

• With a vacancy rate of 6 percent, average
  effective rents remained relatively stable
  through 2004 after declining from 2000 peaks
• 1,748 for Class A Apartments (-5.1 since
  October 2002)
• 1,187 for Class B Apartments (-3.7 since
  October 2002)
• 967 for Class C Apartments (-4.0 since
  October 2002)
• From May 2004 to February 2005, rents have
  remained largely unchanged

28
Changes in Rent by Property Class
Source Northeast Apartment Advisors
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Affordability of Rental Housing

• Housing is considered affordable when a
  household must pay no more than 30 of its annual
  income for rent or 33 for principal, interest,
  taxes and insurance
• In 2004, median advertised rents in 16 of 20
  Boston area communities and in every Boston
  neighborhood exceeded 30 of the median renter
  income for that city or town, unchanged from 2003
  and only a slight improvement over 2002 when
  advertised rents were unaffordable in 18
  communities

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Affordability Remains a Problem

• Nearly 50 of all renter households were cost
• burdened in 2003 up from 43.3 in 2002
• The number of severely cost burdened renter
• households (those paying over 50 of income
  for
• rent) swelled to nearly 25 -- from 21.5 in
  2002
• Despite softening in area rents over past 2
  years,
• rent levels remain high throughout most of
  the region
• Even with 34,000 fewer renter households in
  the Boston
• PMSA than in 2000, 19,000 more faced cost
  burdens

31
Median Single Family Home Price 2001-2004

Source Warren Group Publications
32
Median Single Family Home Price 1987-2004
Source Warren Group Publications
33
of Communities with Median Single Family Home
Price
Source Warren Group Publications
34
of Communities with Median Single Family Home
Price
Source Warren Group Publications
35
Owner Occupied Affordability

• By 2004, households earning the median income in
  their community could afford the median priced
  single family home in only 27 of the regions 161
  cities and towns, down from 77 in 2002 and 148 in
  1998
• And in only 1 town could first time homebuyers
  earning only 80 of the municipalitys median
  income afford a home that sold for 80 of the
  median priced house down from 17 in 2002 and
  116 in 1998

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Public Spending on Housing

• After having been cut 5 in FY 2004 to its lowest
  level since 1995, state funding increased by 7
  in FY 2005 and is up another 7 for FY 2006.
  Still, at 215 million, it is 10 below what it
  was in 2002
• While state spending rose, the federal
  contribution dropped by nearly 4 so combined
  state and federal funding in FY 2005 declined
  slightly for the first time since 1992
• Moreover, nearly all federal money and a large
  share of state funds go for rent subsidies or the
  maintenance of existing housing. Only about 18
  million out of the nearly 400 million federal
  contribution is available for new production

37
Total State Funding for Housing 1989-2005
Source DHCD
38
Total DHCD Spending (State and Federal Funds)
Source DHCD
39
Housing Production in Boston PMSA v. Housing
Goals in the New Paradigm Report
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Conclusion

• Greater Boston now has the highest living costs
  of any metro area in the United States . led by
  high housing costs (as well as by high medical
  and day care costs)
• Not surprising, Greater Boston and Massachusetts
  are losing population, especially young working
  families, to other regions of the country
• While housing production has increased over the
  past 3 years, 2004 production was still at only
  72 percent of the level needed to slow housing
  price appreciation to normal levels
• We still need to encourage more housing
  production as a moral imperative and an
  economic necessity