Boston Foundation releases fourth annual Housing Report Card

Boston  – Despite recent modest gains in housing supply and similarly modest declines in some market prices, Greater Boston remains at the top of the list among the most expensive urban areas in the country, a long term problem that has caused middle class and young workers between the ages of 25 and 34 to leave the state in increasing numbers in recent years. As a result, housing continues to be the No. 1 economic development challenge for the Commonwealth, according to a report released today by the Boston Foundation.

The report,  The Greater Boston Housing Report Card 2005-2006: An Assessment of Progress on Housing in the Greater Boston Area , is the fourth annual analysis and review of the state of housing production in the region. It is the result of a collaboration of the Boston Foundation, the Center for Urban and Regional Policy at Northeastern University, and the Citizen’s Housing and Planning Association.

The new research comes out in the midst of numerous media reports highlighting declines in the region’s housing prices; the length of time that housing stock stays on the market; and a drop in the number of residential units sold in the region. However, the report details a housing production process unable to respond to the urgent needs of the market and a price structure so high that those recent declines still have not affected the fundamental cost pressure  that families, young people and first-time homebuyers feel as they seek to join the housing market.

“When we created the first annual Housing Report Card for the Boston Foundation in 2002, we included a warning: if we were unable to fix the housing production process, the region would wither,” said Barry Bluestone, Director of the Center for Urban and Regional Policy at Northeastern University, which researched the report. “Now, the impact is undeniable—we have withered.”

He said Greater Boston continues to under-produce single-family homes in any but the highest price ranges, and that that production deficit will continue to make the region one of the most expensive in the country despite some recent softening of the market.

One of the causes of this “broken development process” is a flawed permitting process that can add as many as seven years to the time it takes to put a new housing project in the ground. In addition, it is only been since the recent passage of Chapter 40R and 40S Smart Growth Housing legislation that communities have received any incentives to encourage family-friendly housing, according to Bluestone.

“We are seeing small improvements in the housing market now, but we need to keep our eye on the prize, which is creating an environment in which families and young people can afford to come and stay and be the work force our economy needs in this increasingly competitive time,” said Paul S. Grogan, President and CEO of the Boston Foundation.

Highlights of the report include the following:

    • Greater Boston remains one of the costliest rental markets in the country. Rents have hit an average of about $1,500 a month, and more than 30 percent of all renters in the region are paying 30 percent of their incomes for housing and 21 percent are spending more than half of their monthly income.

    • Building permits were issued for almost 16,000 units of housing in 2005, more than 91 percent of the annual target first established in 2000 and reaffirmed in the past three annual Housing Report Cards. The target is an estimate of how much new housing would be needed each year for five years to bring supply and demand into alignment so that prices would not rise faster than the rate of inflation.

    • New housing production consists mainly of one- and two-bedroom units in multifamily rental and condominium dwellings, housing restricted to those age 55 and older, and large and expensive single-family homes.

    • New legislation designed to encourage the development of Smart Growth housing in town centers and along existing lines of public transportation has had real impact. This can be seen in the fact that more than 30 towns across the Commonwealth that have expressed serious interest in using Chapter 40R to produce housing—and six towns have actually created 40R districts with the potential for more than 1,700 units of housing.

Demographic overview

The most recent census data charts a net domestic out-migration from Massachusetts of more than 60,000 for the second year in a row, almost three times the net outflow that occurred between mid-2001 and mid-2002. Because the rate of immigration also fell, the overall population of the state declined for the second straight year. The largest losses of population occurred among resident between the ages of 20 and 34.

Growth occurred in individual towns—Middleton, Raynham, Lakeville, Peabody, Abington and Hingham—as well as in Plymouth County and along the Route 495 corridor. That increases in Peabody and Hingham, however, are directly connected to the development of large continuing care retirement communities in those towns.

While a host of factors can affect population growth and decline, new statistical evidence developed by the Center for Urban and Regional Policy at Northeastern University, using data from hundreds of urban centers across the country underscores the powerful impact the cost of housing has on employment and population levels. In simple terms, the top tenth of metro areas in the country with the highest housing costs, employment growth averaged less than 1 percent between 2000 and 2004. In the next decile, employment growth was three times higher—2.9 percent. The next decile in terms of housing costs saw employment grow by 2.3 percent.

During that same period, Greater Boston, which stood near the top of the list in terms of housing costs, saw a 4.9 percent job loss.

This pattern is even more strongly expressed as a relationship between housing costs and population growth. Metro areas in the top decile in terms of housing costs typically saw a net out-migration of 2.25 percent between 2000 and 2004. The next seven deciles experienced net in-migration somewhere between 2.5 and 3.1 percent. During this period Greater Boston saw 5.2 percent of its population leave—further evidence of the influence of housing costs on people’s choices of where to live, and of the fluidity of the population.

“We need to pull back from the day-to-day fluctuations in the market and see this for what it is,” said Grogan. “The high cost of housing, driven by an inadequate supply, and fueled by a failed permitting process, is driving away our children, recent college graduates and the skilled and trained workers we need here to make our economy thrive. What we need to build is a new process to generate housing that can genuinely serve the wider community.”

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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 an endowment of over $750 million.  In 2005, the Foundation and its donors made more than $60 million in grants to nonprofit organizations and received gifts of more than $70 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.  For more information about the Boston Foundation, visit www.tbf.org  or call 617-338-1700.