Housing Supply: The Quiet Job Killer Barry Bluestone Director, Center for Urban and Regional Policy Northeastern University Massachusetts Association of Realtors Curry Student Center Northeastern University June 15, 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  Chapter 40R & 40S

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”

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 has 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 for 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

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

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

The Basics of “Smart Growth”Chapter 40R  Allows local option to adopt Overlay Districts near transit, areas of concentrated development, commercial districts, rural village districts, and other suitable locations  Allows “as of right” residential development of minimum allowable densities  Provides that 20% of the units be affordable  Allows Mixed Use and Infill  Provide two types of payments to municipality  Encourages open space and protects historic districts

Chapter 40R Incentive Payments  A new Smart Growth Housing Trust Fund is established under Ch. 40R. From it the State will pay a one-time “zoning incentive payment” within 10 days of DHCD confirmation of approval of a Smart Growth Zoning District: up to 20 units -- $ 10, units -- $350, units -- $ 75,000 over 500 units -- $600, $200,000 In addition, a one-time “Density Bonus Payment” of $3,000 will be paid by the state for each new or rehabbed housing unit built within a smart growth zoning district, to be paid within 10 days of issuance of building permit.

Chapter 40 S School Cost Insurance Program  Ch. 40S provides “insurance” that the State will pay for net additional school costs (if any) for students in new housing in Ch. 40 R Districts  If there are no net costs, there is no payment  By taking the school cost issue off the table, it should make it economically feasible for communities to permit modest prices single family home construction

Chapter 40R and S are Working  Plymouth, North Reading, Norwood, Dartmouth, Chelsea have passed 40Rs  More than 30 Communities have expressed interest or considering passage  Already land is zoned for over 1,500 new units of housing … a strong start

Smart Growth Zoning under consideration LEGEND Filed w/DHCD or applied for PDF grant Under local consideration

Finally, what about home prices in the near future?

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  Chapter 40R and 40S mark the beginning of a solution to the economic and demographic challenge  We need not only to moderate housing price appreciation but produce housing affordable for young working families  Everyone has a stake in solving the housing problems in the Commonwealth

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