Detouring the Mass Exodus: Housing as an Economic Development Strategy Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Director, Center for Urban and Regional Policy Northeastern University Northeast Association of REALTORS Holiday Inn Tewksbury, Massachusetts October 3, 2007

Presentation Outline  Employment Trends  Population Dynamics  Housing Prices  Cost of Living across U.S. Metro Areas  Impact of Housing Prices on Employment  Impact of Housing Prices on Migration  Housing Price/Vacancy Relationship  Chapter 40R & 40S

Economic Activity Index: Massachusetts vs. U.S. ( ) January 1993 – October 2001 Leading the Nation October 2001 – June 2007 Lagging the Nation

Massachusetts Employment Picture

U.S. Bureau of the Census

Where did they go?

The Cost of Living Challenge

Single Family Home Prices ( : +139% : - 10%

2005 Class A Apartment Rents Source: Forbes Magazine Calculations based on 900 Sq.ft. Apartment

Housing Affordability in Greater Boston Renter Households paying >30% of Income 39.2%50.1% Renter Households paying >50% of Income 18.4%25.0% Owner-Occupied Households paying >30% of Income 26.7%39.3% Owner-Occupied Households paying >50% of Income 9.0%13.9%

Source: Economic Policy Institute, “Family Budget Calculator, 2005”

Boston $64,656 Source: Economic Policy Institute, “Family Budget Calculator, 2005” Universe: 304 U.S. Metro Areas

Boston Family Budget – 4 Persons  Housing Costs: 7 th Highest MSA  Child Care: 7 th Highest MSA  Health Care: 7 th Highest MSA  Personal Care: 6 th Highest MSA  Fed/State Tax: 2 nd Highest MSA  Total Cost: 1 st Highest MSA Economic Policy Institute, Family Budget Calculator, 2005 Among 304 U.S. Metropolitan Areas

Top Decile: Metro Area Cost of Living Boston $ 64,656 Washington (D.C. portion) $ 61,440 Nassau-Suffolk, NY $ 60,780 Stamford-Norwalk, CN$ 60,720 Lawrence (Mass. portion) $ 59,280 New York, NY$ 58,656 Barnstable-Yarmouth, MA $ 58,236 San Francisco, CA $ 57,624 Worcester (Mass. portion) $ 55,704 Springfield, MA$ 55,320 Minneapolis-St. Paul, MN$ 54,948 Nashua, NH $ 54,852 Santa Cruz-Watsonville, CA$ 53,808 Oakland, CA $ 53,412 San Jose, CA $ 52,800 Pittsfield, MA $ 52,632 Rochester, MN $ 51,288 Monmouth-Ocean, NJ$ 50,736 San Diego, CA $ 50,088 Newark, NJ$ 49,992 New Haven-Meriden, CN $ 49,848 Honolulu, HI $ 49,824 Philadelphia (Pa. portion) $ 49,716 Boulder-Longmont, CO$ 49,596 Bridgeport, CN$ 49,272 Manchester, NH $ 49,152 Santa Rosa, CA$ 48,924 Albany-Schenectady-Troy, NY $ 48,900 Hartford, CN$ 48,684 Trenton, NJ$ 48,576 Rochester, NY$ 48,540 Economic Policy Institute: Family Budget Calculator Universe: 304 U.S. Metro Areas

A Tale of Two Cities Basic Budget 2 Parents, 2 Children Boston Monthly Housing$1,266 Monthly Food$ 587 Monthly Child Care$1,298 Monthly Transportation$ 321 Monthly Health Care$ 592 Monthly Other Necessity$ 500 Monthly Taxes$ 824 Monthly Total$5,388 Annual Total $64,656 Raleigh-Durham- Chapel Hill Monthly Housing$ 779 Monthly Food$ 587 Monthly Child Care$ 866 Monthly Transportation$ 358 Monthly Health Care$ 368 Monthly Other Necessity$ 369 Monthly Taxes$ 350 Monthly Total$3,677 Annual Total $ 44,124 A Tale of Two Cities Source: Economic Policy Institute, “Family Budget Calculator, 2005”

Boston ($1,266) Source: Economic Policy Institute, “Family Budget Calculator, 2005”

New Housing Research  New England Public Policy Center Alicia Sasser, Bo Zhao, and Darcy Rollins  The Rappaport Institute for Greater Boston Edward L. Glaeser  The Center for Urban and Regional Policy Barry Bluestone

New England Public Policy Center  Region-wide Analysis of Housing Affordability  Owner-Occupied Housing is often not affordable and the problem is getting worse  Young professionals are having a more difficult time buying their first homes  Very low income families being squeezed out of the market by working and middle income families seeking housing  Easier access to mortgage money increased demand  Strict regulations on building is constraining supply  Need policies to increase supply of working and middle income housing

Rappaport Institute Study  Limits on housing construction are responsible for the recent loss in population in Massachusetts  Restricting the production of housing leads to greater volatility in housing prices  Significant price increases associated with restricted supplies of housing subsequently appear to lead to declines in employment and incomes

CURP Study of Housing, Employment and Population  Metro areas with highest cost of living are suffering slow employment growth or outright job loss  Metro areas with the highest cost of living are suffering net out-migration of domestic population  Paradox: The shortage of housing supply can lead to a future sharp decline in housing prices … as jobs and workers leave the state

Low PriceHigh Price Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics Universe: 245 U.S. Metro Areas 0.95% 2.91% 2.29% 0.86% 1.53% 0.68% -0.68% 0.12% -0.62% 1.49%

Boston MSA (-4.9%) Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics Universe: 245 U.S. Metro Areas

Monthly Housing Cost Employment Change (%) ( ) Boston MSA %∆Emp( ) = Housing Cost (4.07) E-007 Housing Cost SQ (4.04) N = 245 Adj. R Square =.056

Low CostHigh Cost Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics -0.21% 0.93% -0.02% 0.84% 1.06% 0.50% 1.09% 1.98% 0.62% 2.53% Universe: 245 U.S. Metro Areas

Boston MSA (-5.2%) Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census Universe: 304 U.S. Metro Areas

Internal Migration (% Change) Monthly Housing Cost Boston MSA %∆Internal Migration = Housing Costs (7.03) E-007 Housing Costs SQ (7.39) N = 304 Adj. R Square =.153

Internal Migration (% Change) Monthly Housing Cost Boston MSA %∆Internal Migration = Housing Costs (7.03) E-007 Housing Costs SQ (7.39) N = 304 Adj. R Square =.153 San Francisco Stamford-Norwalk San Jose Boston Oakland Nassau-Suffolk

-2.12% 0.16% 1.54% 1.40% 2.19% 1.04% 0.60% 0.41% 0.19% 0.39% Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census Universe: 304 U.S. Metro Areas Boston

What is the relationship between housing prices and housing supply?

Housing Price Appreciation ( ) Housing Price Appreciation vs. Vacancy Rates Office of Federal Housing Enterprise Oversight; U.S. Census Bureau Universe: 75 U.S. Metro Areas

Office of Federal Housing Enterprise Oversight; U.S. Census Bureau Universe: 75 U.S. Metro Areas Housing Price Appreciation ( )

Housing Price Decline – Metro Areas Peak Qtr.HPI IndexTrough Qtr.HPI Index%CHGRecovery Gary, IN1981:I :III %7 years BOSTON, MA1988:IV :II % 9 years Duluth, MN1988:II :III %11 years WORCESTER, MA1989:IV :I % 9 years SPRINGFIELD, MA1989:iv :i % 11 years Honolulu, HI1993:II :III %9 years Detroit, MI1981:IV :IV %5 years Hartford, CN1988:III :I %13 years Los Angeles, CA1990:III :III %12 years Lafayette, LA1982:iii :IV %15 years U.S. Office of Federal Housing Enterprise Oversight

Chapter 40R and 40S New Steps to Solve the Massachusetts Housing Crisis … and protect the Commonwealth’s economy

Chapter 40R Communities  Amesbury  Brockton  Chelsea  Dartmouth  Grafton  Haverhill  Kingston  Lakeville  Lunenburg  Lynnfield  Natick  North Andover  North Reading  Northampton  Norwood  Plymouth  Total: 5,813 Units

Filed for 40R Filed for Technical Assistance  Belmont  Boston  Gardner  Lawrence  Total: 2,101 Units  Holyoke  Newbury  Reading  Westport  Total 1,024 Units  Grand Total: 8,938 Units

Conclusions  The high price of housing in Massachusetts is indeed a significant factor in the decline in employment and population  The high cost of living beyond housing – including health care, day care, and taxes – contributes to the decline in employment and population  An increase in housing supply could “inoculate” homeowners against a long-term precipitous decline in housing values by improving the job climate and discouraging outmigration  Chapter 40R and 40S are the beginning of a solution  New Starter Home Legislation will help as well