Sustaining the Mass Economy: Housing Costs, Population Dynamics, and Employment Barry Bluestone Director, Center for Urban and Regional Policy Northeastern.

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Presentation transcript:

Sustaining the Mass Economy: Housing Costs, Population Dynamics, and Employment Barry Bluestone Director, Center for Urban and Regional Policy Northeastern University May 2006

Key Questions  Are the recent discouraging trends in Massachusetts employment and population related to the cost of housing?  Why should current homeowners in Massachusetts who have enjoyed double- digit appreciation in the value of their homes support an increase in housing supply?

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

Employment Trend – U.S. U.S. Bureau of Labor Statistics

Employment Trend - Massachusetts U.S. Bureau of Labor Statistics

U.S. Bureau of the Census

U.S. Census Bureau

U.S. Bureau of the Census

Where did they go?

Greater Boston Median Single Family Home Price Source: The Warren Group Publications

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

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”

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

Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census Boston MSA (-5.2%) 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 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 San Francisco Stamford-Norwalk San Jose Boston Oakland Nassau-Suffolk

Simulation Results The Impact of Employment Growth and Housing Prices on Net Internal Migration (Northeastern States) Monthly Housing Cost % Employment Growth $600$1, %+ 2.27%- 0.77% +2.5%+ 1.30%- 1.74% -4.85%- 1.54%- 4.58% Simulation based onNortheast Regression The -4.85% employment loss and the $1,266 monthly housing price refer to the values for Greater Boston, the former from the U.S. Bureau of Labor Statistics, the latter from the EPI Family Budget Calculator (4-Person Family with 2 Children)

Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census Universe: 304 U.S. Metro Areas

And, finally, 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

- 12.2% U.S. Office of Federal Housing Enterprise Oversight 1988:4 th Q – 1992:2 nd Q

Conclusions  The high price of housing is indeed a significant factor in the decline in employment and population in Massachusetts  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” Massachusetts homeowners against the possibility of a long-term precipitous decline in housing values

General Policy Implications  INCREASING the housing stock, particularly starter homes for young families is critical to the future economic development and prosperity of the Commonwealth  REDUCING the high cost of health care, day care, and reduce the tax burden (particularly the residential property tax which contributes to housing costs) is important as well … along with assuring that the quality of local public services encourages families to stay in the Commonwealth despite its relatively high cost