The Greater Boston The Greater Boston Housing Crisis:Housing Crisis:

Problem/SolutionProblem/Solution

Jobs for MassachusettsJobs for Massachusetts

Professor Barry BluestoneProfessor Barry Bluestone

April 2004April 2004

September 2000September 2000

New Paradigm for Housing in Greater BostonNew Paradigm for Housing in Greater Boston Faced with a limited supply of existing housing, extremely low vacancy rates, and a decade of inadequate housing production, the New Paradigm report concluded that in the next five years an additional 36,000 housing units would need to be constructed in the Boston Metropolitan Statistical Area (MSA), over and above existing production levels, in order to help moderate future price and rent increases.

New Paradigm for Housing New Paradigm for Housing in Greater Bostonin Greater Boston

a a “moral imperative”“moral imperative” for all for all those who need decent housing those who need decent housing at affordable pricesat affordable prices

an an “economic necessity”“economic necessity” in order in order to sustain Boston’s renaissance to sustain Boston’s renaissance economyeconomy

The Current SituationThe Current SituationCorporations, educational institutions, medical Corporations, educational institutions, medical centers and non-profits have difficulty attracting centers and non-profits have difficulty attracting workers to Massachusetts.workers to Massachusetts.

Many of the state’s best young minds are leaving Many of the state’s best young minds are leaving for areas with more affordable housing.for areas with more affordable housing.

Future economic growth depends on housing at Future economic growth depends on housing at reasonable prices.reasonable prices.

The unique quality of life in New England is The unique quality of life in New England is threatened by accelerating sprawl.threatened by accelerating sprawl.

How Have We Done?How Have We Done?

Household Growth vs. New Household Growth vs. New HousingHousing

The 1990s:The 1990s:

# of New Households: # of New Households: 129,265129,265

# of New Housing Units: # of New Housing Units: 91,56791,567

As a result, housing vacancy As a result, housing vacancy rates in Greater Boston rates in Greater Boston plummetedplummeted

Vacancy RatesVacancy Rates

19901990 20002000 20032003

Rental Rental HousingHousing

6.7%6.7% 2.7%2.7% 6.0%6.0%

Owner-Owner-OccupiedOccupied

1.7%1.7% 0.6%0.6% 0.6%0.6%

Source: U.S. Census

Housing Price Inflation

Vacancy Rate

2%

4%

6%

8%

2%1.5%1% 2.5% 3% 3.5% 4%

-2%

-4%

-6%

.5%

Average Rents 1992-2002

$848$913

$847

$1,075 $1,121$1,233

$1,304

$1,439 $1,410

$1,565

$959

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Mon

thly

Ren

t for

900

Sq

Ft A

pt

1995-2000: +63%

Change in Rents by Class Change in Rents by Class of Propertyof Property

Survey PeriodSurvey Period Class AClass A

ApartmentsApartments % Change% Change Class BClass B

ApartmenApartmentsts

% % ChangeChange

Class CClass C

ApartmentsApartments% Change% Change

Effective Rent Effective Rent Per UnitPer Unit

August 2002August 2002

$1,821$1,821 $1,22$1,2233

$ 996$ 996

Effective Rent Effective Rent Per UnitPer Unit

August 2003August 2003

$1,782$1,782 -2.1 %-2.1 % $1,21$1,2122

-0.9 -0.9 %%

$1.005$1.005 +0.9 +0.9 %%

Source: Northeast Apartment Advisors, Inc. “Boston Metro Apartment Research Report

$169$159

$152$146 $148 $150 $154

$161$168

$186

$210

$245

$273

$313

$343

$165 $168

$100

$150

$200

$250

$300

$350

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

(in

$th

ou

san

ds)

Median Single Family Home Price 1987-2003

1997-2003: 104%

2001-2003: +26%

Prices Rose Faster in Lower Income Areas

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000

2000 Median Household Income

% C

han

ge

in M

edia

n H

om

e P

rice

s (2

001-

2003

)

0

5,000

10,000

15,000

20,000

25,000

30,000

Year

Nu

mb

er

of

Perm

its

Building Permits Issued in Greater Boston, 1980-2002

(161 Municipalities)

25,000

11,000

CategoryCategory

Total Total Needed Needed per Yearper Year

1995-99 Avg. 1995-99 Avg. Level of Level of

ProductionProduction 19991999 20002000 20012001 2002e2002e

Market RateMarket Rate 9,8609,860 7,1607,160 7,4167,416 6,7666,766 6,0056,005 6,3756,375

Subsidized - new Subsidized - new constructionconstruction 4,3004,300 1,3001,300 931931 1,4781,478 1,6511,651 1,2131,213

Dorm UnitsDorm Units 1,5001,500 ** 256256 165165 704704 606606

Total Production Total Production Levels including Levels including Dorm UnitsDorm Units 15,66015,660 8,4608,460 8,6038,603 8,4098,409 8,3608,360 8,1948,194

Housing Production in Boston MSA vs. New Paradigm Goals

CategoryCategory 19991999 20002000 20012001 20022002 20032003

% of total goal met% of total goal met 55%55% 54%54% 53%53% 51%51% 60%60%

% of goal met% of goal met((MarketMarket)) 75%75% 69%69% 61%61% 58%58% 72%72%

% of goal met% of goal met((SubsidizedSubsidized)) 22%22% 34%34% 38%38% 30%30% 43%43%

Housing Production in Boston MSA vs. New Paradigm Goals

Excluding DMH/DMR group homes and Excluding DMH/DMR group homes and units qualified by rehab or first-time units qualified by rehab or first-time homebuyer statushomebuyer status

Units Eligible for Units Eligible for Inclusion on Inclusion on Subsidized Subsidized

Housing Housing Inventory (40B Inventory (40B

List)List)

Comprehensive permitComprehensive permit 77%77%

All other All other 23%23%

TOTALTOTAL 100%100%

Tools/Programs Used to Create Qualified Affordable Housing in Communities with Subsidized Housing Below Ten Percent

Source: State Housing Inventory (1997; 2002) supplemented by DCHD and CHAPA

DHCD Spending -- State and Federal Funds 1989-2003

0

100

200

300

400

500

600

700

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Tota

l Spe

ndin

g in

$M

illio

ns (N

omin

al $

)

total state spending total federal spending

Total State Spending: Operating and Capital Budgets 1989-2004

0

50

100

150

200

250

300

350

400

450

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Sp

endi

ng

in $

Mill

ions

(Nom

inal

$)

State Operating Funds State Capital Budget

SummarySummary

Housing Production has failed to meet the New Housing Production has failed to meet the New Paradigm GoalsParadigm Goals

Vacancies have fallen well below “normal” levelsVacancies have fallen well below “normal” levels

Rents and Prices have therefore skyrocketedRents and Prices have therefore skyrocketed

Affordable Housing production is well below goalAffordable Housing production is well below goal

Comprehensive (40B) is helping to fill needComprehensive (40B) is helping to fill need

State funding for housing is declining as a percent State funding for housing is declining as a percent of total state spendingof total state spending

Why Doesn’t Supply Match Why Doesn’t Supply Match Demand?Demand?

Limited land availabilityLimited land availability prevents large developments. prevents large developments.

Expensive construction materialsExpensive construction materials make affordable make affordable housing unaffordable.housing unaffordable.

Labor costs are highLabor costs are high..

““Soft” costsSoft” costs are killing developers are killing developers. .

Overzealous and inconsistent buildingOverzealous and inconsistent building codes codes

““Snob” zoning lawsSnob” zoning laws restrict where and what housing restrict where and what housing can be built.can be built.

Why Doesn’t Supply Match Why Doesn’t Supply Match Demand? (con’t)Demand? (con’t)

Prop 2 ½Prop 2 ½ limits the revenue limits the revenue generated by housing. generated by housing. State and federal governmentState and federal government.. Subsidies for new Subsidies for new housing are drying up housing are drying up Politicians.Politicians. Our fearless leaders bemoan the housing Our fearless leaders bemoan the housing crisis, but their hands are tied by budget constraints crisis, but their hands are tied by budget constraints and constituent complaints.and constituent complaints.NIMBYismNIMBYism. We all want housing built to keep the . We all want housing built to keep the Commonwealth economically viable, but Commonwealth economically viable, but NNot ot IIn n MMy y BBack ack YYard ... and not for the poor! ard ... and not for the poor!

A Housing StrategyA Housing Strategyfor Smart Growth and Economic for Smart Growth and Economic

DevelopmentDevelopment

The Commonwealth Housing Task ForceThe Commonwealth Housing Task Force

The Center for Urban and Regional PolicyThe Center for Urban and Regional PolicyNortheastern UniversityNortheastern University

Edward C. CarmanEdward C. CarmanEleanor WhiteEleanor White

Barry BluestoneBarry Bluestone

The Problem and its ResolutionThe Problem and its ResolutionThe shortfall in housing production results from The shortfall in housing production results from insufficient land zonedinsufficient land zoned for the development of for the development of apartments and single family homes on smaller lots.apartments and single family homes on smaller lots.

Enough land needs to be zoned so that the private Enough land needs to be zoned so that the private sector can sector can efficiently increase productionefficiently increase production to meet the to meet the demand for new housing – when and where it is needed.demand for new housing – when and where it is needed.

The zoned land should conform to The zoned land should conform to Smart GrowthSmart Growth principles. It should encourage the provision of more principles. It should encourage the provision of more open space and enhance historic preservation efforts.open space and enhance historic preservation efforts.

More housing affordability is essentialMore housing affordability is essential. Massachusetts . Massachusetts has been named the least affordable state for housing in has been named the least affordable state for housing in the U.S. (CHAPA Press Release 9/8/03)the U.S. (CHAPA Press Release 9/8/03)

The Proposed ProgramThe Proposed Program

Provides incentivesProvides incentives to local communities that will to local communities that will yield sufficient land, zoned as-of-right, to yield sufficient land, zoned as-of-right, to accommodate increased production.accommodate increased production.

Requires that developments with over 12 units Requires that developments with over 12 units have have 20% of the units affordable20% of the units affordable to those at 80% to those at 80% of median income. of median income.

Increases Increases state funding commitments to pay for state funding commitments to pay for affordability in the districtsaffordability in the districts, and to increase the , and to increase the production of affordable units outside the districts.production of affordable units outside the districts.

Smart Growth LocationsSmart Growth Locations

Overlay Zoning DistrictsOverlay Zoning Districts in three locations will in three locations will be eligible for incentives:be eligible for incentives:

1.1. Transit / Commuter Rail StationsTransit / Commuter Rail Stations

2.2. Town centersTown centers

3.3. Underutilized industrial, commercial and Underutilized industrial, commercial and institutional propertiesinstitutional properties

Proposed State IncentivesProposed State Incentives

Density Bonus PaymentDensity Bonus Payment of $2,000 for each apartment of $2,000 for each apartment and $3,000 for each single family home and $3,000 for each single family home allowed by the allowed by the zoningzoning, paid when the Overlay District is enacted by the , paid when the Overlay District is enacted by the community. community.

For those public school students from new housing For those public school students from new housing actually built in an Overlay District, the state’s actually built in an Overlay District, the state’s Chapter Chapter 70 share of school costs will increase to 100%.70 share of school costs will increase to 100%.

Special priority for State spending of capital fundsSpecial priority for State spending of capital funds (schools, transportation, water, sewer, etc.).(schools, transportation, water, sewer, etc.).

Link to 40B ReformLink to 40B Reform

Legislation now pending to Reform Chapter Legislation now pending to Reform Chapter 40B.40B.

After reforms are in place, recommendations After reforms are in place, recommendations will be developed to integrate the Overlay will be developed to integrate the Overlay Zoning District program with the provisions of Zoning District program with the provisions of 40B and assure consistency.40B and assure consistency.

Implementation Assistance Implementation Assistance

$1 million per year$1 million per year for staffing for regional outreach, for staffing for regional outreach, including community development corporations and including community development corporations and other planning organizations.other planning organizations.

$4 million per year$4 million per year for professional fees for local for professional fees for local communities:communities:– Matching with local funds;Matching with local funds;

– To pay for Planners, Engineers, Surveyors, Lawyers, To pay for Planners, Engineers, Surveyors, Lawyers, Housing and Finance Experts, and the Preparation of Housing and Finance Experts, and the Preparation of Build-out Analyses.Build-out Analyses.

– Administered by DHCDAdministered by DHCD

Summary of New UnitsSummary of New UnitsEstimated Future

Total Units Production Net Affordable Units Affordable Unitsin Districts minus Transferred to equals New and Within Outside Districts @

Districts Production includes Districts 50,000

2004 1 0 0 0 0 2002005 2 0 0 0 0 2702006 3 1,600 700 900 320 4402007 4 2,700 1,200 1,500 540 7202008 5 4,200 1,800 2,400 840 9702009 6 4,400 1,900 2,500 880 1,1502010 7 4,600 2,000 2,600 930 1,3202011 8 4,900 2,100 2,800 970 1,5002012 9 5,100 2,200 2,900 1,020 1,6802013 10 5,400 2,300 3,100 1,070 1,850

32,900 14,200 18,700 6,570 10,100

Total New Housing Produced 28,800 (Net new units, plus affordable outside districts)

Estimated Program CostsEstimated Program CostsOverlay Zoning DistrictsOverlay Zoning Districts

Density Bonus Payments for Overlay Zoning Districts Density Bonus Payments for Overlay Zoning Districts allowing 50,000 housing units are projected to cost allowing 50,000 housing units are projected to cost approximately approximately $12 million per year$12 million per year over ten years. over ten years.

After 10 years in operation, the cumulative new state school After 10 years in operation, the cumulative new state school costs for 33,000 new housing units in Overlay Districts would costs for 33,000 new housing units in Overlay Districts would be approximately be approximately $60 million per year$60 million per year. .

The current Chapter 70 school reimbursement budget is $3.0 The current Chapter 70 school reimbursement budget is $3.0 billion. The cumulative costs billion. The cumulative costs after ten yearsafter ten years will equal only will equal only 2.1%2.1% of the of the currentcurrent budget. It will be significantly less in budget. It will be significantly less in earlier years.earlier years.

Program CostsProgram CostsBefore Revenue OffsetsBefore Revenue Offsets

(ooo's)

Funding for Funding for TotalDensity Annual Implementation Affordability Affordability Estimated

Years Bonus Chapter 70 Funds Within Outside ProgramPayments Payments Districts Districts Costs

2004 1 0 0 5,000 0 10,000 15,0002005 2 11,400 0 5,000 0 13,600 30,0002006 3 12,200 3,300 5,000 8,000 22,000 50,5002007 4 16,000 9,500 4,000 13,800 36,200 79,5002008 5 11,400 17,200 4,000 21,600 48,400 102,6002009 6 11,800 25,300 4,000 22,600 57,400 121,1002010 7 12,400 33,800 4,000 23,800 66,200 140,2002011 8 13,000 42,700 4,000 25,000 75,000 159,7002012 9 13,700 52,100 4,000 26,200 83,800 179,8002013 10 13,300 62,000 4,000 27,500 92,500 199,300

$115,200 $245,900 $43,000 $168,500 $505,100 $1,077,700

Total program costs are before Revenues and Offsets

Proposed Revenue SourcesProposed Revenue Sources

Increased state revenues from income and sales taxesIncreased state revenues from income and sales taxes on on construction related wages and the purchase of materials construction related wages and the purchase of materials from 56% of the new units built are estimated to average $27 from 56% of the new units built are estimated to average $27 million per year after the fifth year. million per year after the fifth year.

Increased state revenues from economic expansionIncreased state revenues from economic expansion due to due to increased housing availability are estimated to grow to increased housing availability are estimated to grow to $28,000,000 by the tenth year. $28,000,000 by the tenth year.

Revenue from the sale of state landRevenue from the sale of state land..

New state appropriationsNew state appropriations..

RRevenues and Revenue Offsetsevenues and Revenue OffsetsNet Program CostsNet Program Costs

(ooo's)

Revenues Revenues from Revenues Total Less Net As % from Economic From Estimated Estimated Program of State

Years Construction Growth Sale of Land Revenues Program Costs BudgetCosts

2004 1 0 0 15,000 15,000 15,000 0 0.00%2005 2 0 0 30,000 30,000 30,000 0 0.00%2006 3 9,400 1,400 35,000 45,800 50,500 4,700 0.02%2007 4 16,800 3,800 40,000 60,600 79,500 18,900 0.08%2008 5 23,500 7,400 42,000 72,900 102,600 29,700 0.12%2009 6 24,600 11,200 44,100 79,900 121,100 41,200 0.17%2010 7 25,900 15,100 46,300 87,300 140,200 52,900 0.22%2011 8 27,200 19,300 48,600 95,100 159,700 64,600 0.27%2012 9 28,500 23,700 51,100 103,300 179,800 76,500 0.32%2013 10 30,000 28,200 53,600 111,800 199,300 87,500 0.36%

185,900 110,100 405,700 701,700 1,077,700 376,000

Anticipated ResultsAnticipated Results

Substantial amounts of land zoned, as-of-right, for Substantial amounts of land zoned, as-of-right, for single family and apartment development, in Smart single family and apartment development, in Smart Growth locationsGrowth locations

33,000 new housing units in Overlay Zoning Districts33,000 new housing units in Overlay Zoning Districts, ,

Additional State funds for affordabilityAdditional State funds for affordability

will significantly improve basic housing conditions will significantly improve basic housing conditions and moderate housing price increases in the and moderate housing price increases in the

Commonwealth.Commonwealth.