Why soaring housing costs threaten Boston’s economic vitality

Printed from: https://newbostonpost.com/2016/03/14/why-soaring-housing-costs-threaten-bostons-economic-vitality/

BOSTON – Boston is expensive. This shouldn’t come as a surprise to anyone, but the numbers on the cost of living are enough to make even longtime residents consider relocating. According to Kiplinger, residing in Boston costs 39.7% more than the national average while health care and groceries are both about 26% higher. Yet median household income remains about the same as the rest of the nation and the city’s poverty rate is a relatively high 21 percent.

Why is living in Boston so expensive? Ask young people looking to live in the city or older folks hoping to return after an extended stay in the suburbs – Boston’s housing market is terrifyingly pricey. Boston’s population has been climbing for the past 20 years, rising almost 15 percent from 1990 to 2014, according to U.S. Census Bureau data. Yet home construction in Greater Boston has lagged far behind, driving housing prices up, according to a November report from the Boston Foundation.

But Boston’s housing market woes aren’t anything new.

“We’ve been dealing with this for 25 years – it’s not a sudden phenomenon,” Edward Glaeser, a Harvard University economist and city expert, said in an interview.

“There’s no repealing the law of supply and demand,” said the author of “Triumph of the City,” which examines urban economics. “If you don’t build enough housing, the city will only be affordable for the wealthy.”

A paucity of affordable housing also prevents young businesses from choosing to make the Hub home.

“Fifty-four years ago, Jane Jacobs made the claim that new firms need old space, which isn’t entirely true – new businesses require cheap space,” Glaeser said. “If you eliminate all production of new space, you make things worse, not better. Greenwich Village in New York City is an excellent example of this.”

“Boston needs easier production of new space,” Glaeser said. “It’s hard in rule-bound Boston to deliver space that new businesses and new people need.”

Those rules include size and housing density limits which virtually prohibit new construction in some areas, according to the Boston Foundation report. The cost of building housing for low-income, disabled and elderly residents is also driven up by rental regulations, it said.

“The cost of developing new housing for working and middle-income households has become prohibitive in Massachusetts,” the report says. “Radical remedies will be needed to overcome the barriers to housing production or supply will continue to fall behind demand and prices and rents will continue to escalate.”

Boston Mayor Marty Walsh has taken steps to ease the crunch, citing in a March 8 speech to the Boston Municipal Research Bureau approvals for 4,194 middle-income housing units that were issued last year alone. But the city has a long way to go to catch up with the rising population that has fueled demand.

Developers are more likely to build office space or hotels than housing, because it’s easier to swallow the idea of building a bespoke property for a business entity than for many unknown buyers or renters, as a recent report in Boston Magazine put it. Echoing Glaeser’s contention that greater housing density would be good for a city like Boston, even if it means higher buildings, the magazine’s report faults the Boston Redevelopment Authority for limiting construction of more economical towers with height restrictions.

As much as developers love building sure-fire money makers like office towers, they’ve also been fond of luxury condo towers of late. In recent years, new luxury condo towers have risen in the downtown area, including Twenty Two Liberty in the Seaport District and Millennium Place in Downtown Crossing. Sepia at Ink Block in the South End opened in 2014 along with the Radian in Chinatown and the Arlington in Bay Village. Last year saw two more luxury condos open, and several are slated to open in 2016 and 2018.

The increase in luxury condos is just one symptom of the out-of-whack economics of housing construction in Greater Boston, according to the Boston Foundation report. It says the average cost to build residential space in the city rose to $274 a square foot in 2015, or over $438,000 for a family-size unit of 1,600 square feet, and that would mean a monthly rent of more than $3,200.

“Can a Boston family afford this typical unit? The answer is clearly no,” the report says. “Under current conditions it is virtually impossible for supply to match demand and therefore the vicious cycle of price appreciation and rent escalation in Greater Boston is fundamentally unmanageable under current economic and political conditions.”

With no end in sight to escalating prices, Boston threatens to become increasingly gentrified, and Glaeser said that could mean the city could stagnate. Rising costs will mean that affordable space for entrepreneurs and artists alike will essentially disappear.

Building housing only for the well-off, Glaeser said, “cuts people out of the innovation economy who would like to be there, and you have a smaller, less fertile ground for growth.”

And Boston’s innovative landscape is one of its biggest attractions to people, particularly those who come from outside the region to study or work.

“There is so much entrepreneurial talent in Boston,” Glaeser said. “Boston is very well-educated, metropolitan – lots of amazing things are happening at MIT.”

Known to many as the Athens of America for its many colleges and universities, the Hub is home to several world-class institutions, such as Harvard, the Massachusetts Institute of Technology and Boston University. But if the next generation’s tech, design, and business wizards can’t afford to live in the city after they graduate and before their startups become wildly successful, Boston’s best young talent may well move somewhere else and take their innovative ideas with them.

Failing to prevent that scenario from becoming a reality could prove disastrous for the city. As Glaeser argues, “urban success is built upon human capital and education.”