Affordable housing supply not keeping up with population growth and demand

Greater Boston Housing Report Card 2015 says area developers don’t have resources to build appropriate housing stock for urban families

Boston – The cost of new construction in Greater Boston has gotten so high and is growing so rapidly that the region is at risk of spiraling in a permanent housing deficit, according to The Greater Boston Housing Report Card 2014-2015: The Housing Cost Conundrum.

The report, the 13th in the series authored by Professor Barry Bluestone and his team at the Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern University, was released Friday at The Boston Foundation, which featured a presentation by Bluestone and a discussion moderated by Becky Koepnick, Director, Neighborhoods & Housing, The Boston Foundation, with panelists William M. McLaughlin, Executive Vice President of Development, Avalon Bay Communities; Leslie Reid Bos, Director of Real Estate, JPNDC; Michael A. Spotts, Senior Analyst, Project Manager, Enterprise Community Partners; and Clark L. Ziegler, Executive Director, Massachusetts Housing Partnership.

The report found that the high cost of housing development in Greater Boston is due in large part to the high cost of construction. Of the average $274 per-square-foot cost of urban projects in Massachusetts, $159 is devoted to construction, the report said. This amounts to 58 percent of total development costs.

Behind construction costs, land acquisition is the second biggest cost component, at nearly $41 per square foot. For a 2,000-square-foot unit, the cost of urban land is now close to $66,000, the report said. Site preparation costs add another $29 per square foot so that land acquisition and site preparation together account for $70 per square foot with developer fees, on average, of $19 and financing fees of $17.

And suburban projects in the Commonwealth are no longer much cheaper to build.

“We have failed to meet housing production targets because there is no way to do so given the high cost of producing housing for working and middle-income households,” said Bluestone. “In part, this is because of the extreme barriers to new construction, especially in the form of severely restrictive zoning at the local level across much of Massachusetts…Unless we find a way to reduce the cost of developing new housing, we will never be able to solve our housing crisis.”

The best solutions to the widening gap between available affordable housing units and population growth in Greater Boston are the development of more multi-family structures, Bluestone said, continuing a clarion cry he has made for years. However, the City of Boston is short on space for such developments and dozens of cities and towns around Boston don’t allow multi-family construction.

“This year’s report emphasizes that we are in or near a period of crisis over the cost and availability of housing in our region,” said Paul S. Grogan, President and CEO of The Boston Foundation. “If we don’t take seriously developers’ shrinking ability to find appropriately zoned land to build on and locations that will allow construction of creative housing options, the great overall economic growth that our region has seen could be threatened.”

State of the Economy

Ironically, one factor driving the growing housing crisis is the strength of Greater Boston’s economy, which is attracting more young professionals to settle in the region, particularly in the city proper.

Over the past seven years, the Massachusetts economy has outperformed the national economy and is expected to grow in 2015 and 2016 at its fastest pace since the early 2000s. The better economy has translated to an unemployment rate below 5 percent for the first time since 2007. And more than 200,000 jobs were created in the Greater Boston area between 2009 and 2014.

How does all this success negatively impact housing costs? New workers and their families, as well as single, childless new workers need places to live, and as in past years, they are competing for the same type of housing: multi-unit structures, particularly the area’s classic triple deckers.

Other Reasons for High Development Costs

The 2015 housing report card also explains that:

• land costs are very high in desirable places to work and live,
• few developers want to reduce the quality of housing units they build,
• the Greater Boston region has a strong focus on preserving “community character,” which translates to little or no new construction and a limit on the size and density of developments under current zoning regulations,
• Bostonians favor strong government regulations for rental housing, especially for low-income families, the elderly, and the disabled, which drives up construction costs,
• And there is strong public support for “green” construction, which drives up current costs, even though such building may reduce long-term expenses.

A Turnaround is Possible

In order to reverse the trend toward skyrocketing development costs, home prices, and rents in Greater Boston, the housing report card recommends larger housing projects, which tend to cost less to build per square foot than single family homes and smaller developments.

The report card also encourages suburban communities to broaden zoning for higher density multi-family housing, and it calls for incentives for communities, housing authorities, nonprofit organizations and businesses to donate land for affordable and mixed-income housing.

Mass-produced modular housing and innovative, efficiently designed housing units – “millennial villages” for young professionals – are suggested, as well.

“Only by taking aggressive action now to find innovative solutions to the high cost of housing development can Greater Boston bring supply into accord with demand and thereby slow the increase in housing costs,” said Bluestone. “Until then, housing will become more and more unaffordable for all but the wealthy.”

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