The Massachusetts Housing Challenge Barry Bluestone Center for Urban and Regional Policy Northeastern University Greater Boston Real Estate Board LINK Forum January 19, 2005

Understanding the Massachusetts Economy & Housing Market  Employment  Household Income  Demographic Trends  Cost of Living  Housing Trends

How is Massachusetts doing … economically?  By the September 2005, employment in Massachusetts was still down by more than 160,000 from its pre-recession peak  Real median household income dropped by 3.5% between 2000 and 2004

Employment Trend

U.S. vs. Massachusetts

Greater Boston MSA Real Median Household Income ($2004)

Greater Boston Real Median Household Income ($2004)

How do the demographics look?  We are losing population to out- migration  The largest net losses in population were in the young prime age cohorts

Greater Boston Population

Massachusetts Net Migration

Where did they go?

What’s doing with the Cost of Living?  According to a new measure of living costs, Greater Boston has the highest cost of living of any metro area in the United States  A family of four needs $64,656 to pay for the costs of housing, transportation, day care, health care, and other basic necessities.  This is more than $3,000 higher than in Washington, D.C; $6,000 higher than in New York City; and $7.000 more than in San Francisco  Monthly housing costs are 40% higher than in Austin, Chicago, and Miami and 63% higher than in Raleigh- Durham-Chapel Hill

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

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

2005 Class A Apartment Rents Source: Forbes Magazine

Below $100, $100,000 - $199, $200,000 - $299, $300,000 - $399, $400,000 - $499, $500,000 - $999, $1,000,000 and Above # of Communities with Median Single Family Sales Price

Below $300, %68.1%55.0%41.9%26.9%11.9% $300,000 - $499, %26.3%33.8%46.3%56.9%66.9% $500,000 and Above 2.5%5.6%11.3%11.9%16.3%21.3% % of Communities with Median Single Family Sales Price

YearTotal Units Permitted Units in Single Family Structures Single Family Units as % of Total Units in 2-4 Unit Structures Units in 5+ Unit Structures ,8468, %5741, ,6627, %7462, ,3427, %7012, ,7016, %6862, ,5206, %7642, ,1216, %1,0935, ,5567, %9945,562

Housing Price Forecast – New England Economic Project  Double-Digit Appreciation from  2005: Appreciation of only 1-3%  2006: Average Price Decline < 3%  : Average Price Increase: <3%/year

NEEP Housing Price Forecast History Forecast

Conclusion – No Short Term Bubble  Housing production has improved in Greater Boston over the past three years, but total production in 2004 was still at only 72 percent of the level needed to slow housing price appreciation to normal levels if economy were sound  In the short run, limited housing supply will keep home prices from collapsing

Conclusion – Long Term Challenges  In the long run, economic weakness, slow job growth, and demographic flight could lead to much weaker housing markets in Massachusetts  And don’t forget about a troubled national economy … with soaring federal debt, massive trade deficits, and increasing international competition for investment and raw materials