The Greater Boston Housing Crisis: Problem/Solution Jobs for Massachusetts Professor Barry Bluestone April 2004

September 2000 New 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 in Greater Boston a “moral imperative” for all those who need decent housing at affordable prices an “economic necessity” in order to sustain Boston’s renaissance economy

The Current Situation Corporations, educational institutions, medical centers and non-profits have difficulty attracting workers to Massachusetts. Many of the state’s best young minds are leaving for areas with more affordable housing. Future economic growth depends on housing at reasonable prices. The unique quality of life in New England is threatened by accelerating sprawl.

How Have We Done?

Household Growth vs. New Housing The 1990s: # of New Households: 129,265 # of New Housing Units: 91,567 As a result, housing vacancy rates in Greater Boston plummeted

Vacancy Rates Rental Housing 6.7%2.7%6.0% Owner- Occupied 1.7%0.6%0.6% Source: U.S. Census

: +63%

Change in Rents by Class of Property Survey Period Class A Apartments % Change % Change Class B Apartments % Change Class C Apartments % Change Effective Rent Per Unit August 2002 $1,821$1,223 $ 996 Effective Rent Per Unit August 2003 $1, % $1, % $ % Source: Northeast Apartment Advisors, Inc. “Boston Metro Apartment Research Report

Median Single Family Home Price : 104% : +26%

Prices Rose Faster in Lower Income Areas

Building Permits Issued in Greater Boston, (161 Municipalities) 25,000 11,000

Category Total Needed per Year Avg. Level of Production e Market Rate 9,8607,1607,4166,7666,0056,375 Subsidized - new construction 4,3001, ,4781,6511,213 Dorm Units 1,500* Total Production Levels including Dorm Units 15,6608,4608,6038,4098,3608,194 Housing Production in Boston MSA vs. New Paradigm Goals

Category % of total goal met 55%54%53%51%60% % of goal met (Market) 75%69%61%58%72% % of goal met (Subsidized) 22%34%38%30%43% Housing Production in Boston MSA vs. New Paradigm Goals

Excluding DMH/DMR group homes and units qualified by rehab or first-time homebuyer status Units Eligible for Inclusion on Subsidized Housing Inventory (40B List) Comprehensive permit 77% All other 23% TOTAL100% 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

Total State Spending: Operating and Capital Budgets

Summary Housing Production has failed to meet the New Paradigm Goals Vacancies have fallen well below “normal” levels Rents and Prices have therefore skyrocketed Affordable Housing production is well below goal Comprehensive (40B) is helping to fill need State funding for housing is declining as a percent of total state spending

Why Doesn’t Supply Match Demand? Limited land availability prevents large developments. Expensive construction materials make affordable housing unaffordable. Labor costs are high. “Soft” costs are killing developers. Overzealous and inconsistent building codes “Snob” zoning laws restrict where and what housing can be built.

Why Doesn’t Supply Match Demand? (con’t) Prop 2 ½ limits the revenue generated by housing. State and federal government. Subsidies for new housing are drying up Politicians. Our fearless leaders bemoan the housing crisis, but their hands are tied by budget constraints and constituent complaints. NIMBYism. We all want housing built to keep the Commonwealth economically viable, but Not In My Back Yard... and not for the poor!

A Housing Strategy for Smart Growth and Economic Development The Commonwealth Housing Task Force The Center for Urban and Regional Policy Northeastern University Edward C. Carman Eleanor White Barry Bluestone

The Problem and its Resolution The shortfall in housing production results from insufficient land zoned for the development of apartments and single family homes on smaller lots. Enough land needs to be zoned so that the private sector can efficiently increase production to meet the demand for new housing – when and where it is needed. The zoned land should conform to Smart Growth principles. It should encourage the provision of more open space and enhance historic preservation efforts. More housing affordability is essential. Massachusetts has been named the least affordable state for housing in the U.S. (CHAPA Press Release 9/8/03)

The Proposed Program Provides incentives to local communities that will yield sufficient land, zoned as-of-right, to accommodate increased production. Requires that developments with over 12 units have 20% of the units affordable to those at 80% of median income. Increases state funding commitments to pay for affordability in the districts, and to increase the production of affordable units outside the districts.

Smart Growth Locations Overlay Zoning Districts in three locations will be eligible for incentives: 1. Transit / Commuter Rail Stations 2. Town centers 3. Underutilized industrial, commercial and institutional properties

Proposed State Incentives Density Bonus Payment of $2,000 for each apartment and $3,000 for each single family home allowed by the zoning, paid when the Overlay District is enacted by the community. For those public school students from new housing actually built in an Overlay District, the state’s Chapter 70 share of school costs will increase to 100%. Special priority for State spending of capital funds (schools, transportation, water, sewer, etc.).

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

Implementation Assistance $1 million per year for staffing for regional outreach, including community development corporations and other planning organizations. $4 million per year for professional fees for local communities: –Matching with local funds; –To pay for Planners, Engineers, Surveyors, Lawyers, Housing and Finance Experts, and the Preparation of Build-out Analyses. –Administered by DHCD

Summary of New Units

Estimated Program Costs Overlay Zoning Districts Density Bonus Payments for Overlay Zoning Districts allowing 50,000 housing units are projected to cost approximately $12 million per year over ten years. After 10 years in operation, the cumulative new state school costs for 33,000 new housing units in Overlay Districts would be approximately $60 million per year. The current Chapter 70 school reimbursement budget is $3.0 billion. The cumulative costs after ten years will equal only 2.1% of the current budget. It will be significantly less in earlier years.

Program Costs Before Revenue Offsets

Proposed Revenue Sources Increased state revenues from income and sales taxes on construction related wages and the purchase of materials from 56% of the new units built are estimated to average $27 million per year after the fifth year. Increased state revenues from economic expansion due to increased housing availability are estimated to grow to $28,000,000 by the tenth year. Revenue from the sale of state land. New state appropriations.

Revenues and Revenue Offsets Net Program Costs

Anticipated Results Substantial amounts of land zoned, as-of-right, for single family and apartment development, in Smart Growth locations 33,000 new housing units in Overlay Zoning Districts, Additional State funds for affordability will significantly improve basic housing conditions and moderate housing price increases in the Commonwealth. will significantly improve basic housing conditions and moderate housing price increases in the Commonwealth.