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Housing Supply: The Quiet Job Killer
Barry BluestoneDirector, 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.
United States
118.8117.7118.4
120.2
123.1124.9
126.7
129.6131.5
133.4
136.9 136.9 136.5137.7
139.3141.4
115
120
125
130
135
140
145
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
in M
illio
ns
U.S. Bureau of Labor Statistics
Employment Trend - Massachusetts
M assachusetts
3044
2875
2795 28152869
29502994
3083
31513200
3279
3371
3270
32113165
3190
2700
2800
2900
3000
3100
3200
3300
3400
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
in T
ho
us
an
ds
U.S. Bureau of Labor Statistics
Employment Growth (2000-2006) Massachusetts vs. U.S.
-30%
-20%
-10%
0%
10%
20%
30%C
onst
ruct
ion
Hig
h Te
chM
fg
Fina
ncia
lS
ervi
ces
Com
pute
rS
ervi
ces
Edu
catio
nS
ervi
ces
Hea
lth C
are
Per
cent
age
Cha
nge
Mass
U.S.
U.S. Bureau of Labor Statistics
Massachusetts Population
5737.0
6016.4
6349.1 6394.8 6411.6 6417.6 6407.4 6398.7
5000.0
5200.0
5400.0
5600.0
5800.0
6000.0
6200.0
6400.0
6600.0
1980 1990 2000 2001 2002 2003 2004 2005
Popu
latio
n (in
thou
sand
s)
U.S. Bureau of the Census
Massachusetts Net Migration (2000-2005)
33,292 33,347 31,785 29,041 26,515
-22,892
-39,506-48,514
-61,980 -60,053-70,000
-50,000
-30,000
-10,000
10,000
30,000
50,000
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
Foreign Immigration Internal Migration
U.S. Census Bureau
Population Change by Age Cohort (2000-2004)
-10%
-5%
0%
5%
10%
15%
20%
25%
Under 5 5 to 19 20-24 25-34 35-54 55-64 65+
Age Cohort
Per
cent
age
Cha
nge
Mass
U.S.
U.S. Bureau of the Census
Population Change by Age Cohort (2000-2004)
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%U
nd
er
5
5 t
o 1
9
20
-24
25
-34
35
-54
55
-64
65
+
Age Cohort
Perc
en
tag
e C
han
ge
Mass
N.Carolina
U.S. Bureau of the Census
Where did they go?
TX
CA
MT
AZ
ID
NV
NM
CO
IL
OR
UT
KS
WY
IA
SD
NE
MN
ND
FL
OK
WI
MO
AL
WA
GA
AR
LA
MI
IN
NY
PA
NC
MS
TN
KYVA
OH
SC
ME
WV
MI VTNH
MD
NJ
MA
CT
DE
RI
Net Migration* Betweeen Massachusetts and Competitor States1990-2002
*Thicker line represents more migration
State Net Migration from State
Florida -99,082 New Hampshire -78,201 California -23,978 Arizona -11,033 North Carolina -8,983 Washington -4,516
$169$159
$152 $146 $148 $150 $154$161
$168
$186
$210
$245
$273
$313
$343
$376
$165 $168
$100
$150
$200
$250
$300
$350
$400
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(in
$th
ou
san
ds)
Greater Boston Median Single Family Home Price 1987-2004
Source: The Warren Group Publications
2005Class A Apartment Rents
$1
,95
3
$1
,82
5
$1
,74
5
$1
,68
6
$1
,67
7
$1
,63
2
$1
,57
9
$1
,52
6
$1
,51
7
$1
,46
6
$1
,43
9
$1
,32
5
$1
,31
6
$1
,24
1
$1
,15
5
$1
,11
1
$1
,04
3
$1
,01
8
$1
,01
2
$9
87
$0
$500
$1,000
$1,500
$2,000
$2,500
Source: Forbes Magazine
Calculations based on 900 Sq.ft. Apartment
Housing Costs - 4 Person Family
$1,539$1,437
$1,313 $1,266$1,187
$1,124
$929$847 $834 $805 $779
$673
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Mo
nth
ly C
ost
s
Source: Economic Policy Institute, “Family Budget Calculator, 2005”
Annual Cost of Living: 4 Person Household
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
1 2 3 4 5 6 7 8 9 10
Cost of Living Decile
De
cil
e A
ve
rag
e C
os
t o
f
Liv
ing
Boston$64,656
Source: Economic Policy Institute, “Family Budget Calculator, 2005”
Universe: 304 U.S. Metro Areas
Boston Family Budget – 4 Persons
Housing Costs: 7th Highest MSA Child Care: 7th Highest MSA Health Care: 7th Highest MSA Personal Care: 6th Highest MSA Fed/State Tax: 2nd Highest MSA
Total Cost: 1st Highest MSA
Economic Policy Institute, Family Budget Calculator, 2005
Among 304 U.S. Metropolitan Areas
Top Decile: Metro Area Cost of Living
Boston $ 64,656Washington (D.C. portion) $ 61,440Nassau-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) $ 55,704Springfield, MA $ 55,320Minneapolis-St. Paul, MN $ 54,948 Nashua, NH $ 54,852 Santa Cruz-Watsonville, CA $ 53,808Oakland, CA $ 53,412 San Jose, CA $ 52,800 Pittsfield, MA $ 52,632 Rochester, MN $ 51,288
Monmouth-Ocean, NJ $ 50,736San Diego, CA $ 50,088Newark, NJ $ 49,992New Haven-Meriden, CN $ 49,848Honolulu, HI $ 49,824Philadelphia (Pa. portion) $
49,716Boulder-Longmont, CO $ 49,596Bridgeport, CN $ 49,272Manchester, NH $
49,152Santa Rosa, CA $ 48,924Albany-Schenectady-Troy, NY $ 48,900Hartford, CN $ 48,684Trenton, NJ $ 48,576Rochester, NY $ 48,540
Economic Policy Institute: Family Budget Calculator
Universe: 304 U.S. Metro Areas
A Tale of Two CitiesBasic Budget2 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”
Regional Average Monthly Housing Costs (2004)
$892.60
$708.46 $692.82$617.23 $616.29 $566.14 $583.67
$720.00
$914.63
-$100
$100
$300
$500
$700
$900
$1,100
$1,300
Hou
sing
Cos
ts
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
Employment Growth (%) (2000-2004)
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
1 2 3 4 5 6 7 8 9 10
Housing Price Decile
Per
cent
Cha
nge
Low Price High 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%
Employment Growth (%) (2000-2004)
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
1 2 3 4 5 6 7 8 9 10
Housing Price Decile
Per
cent
Cha
nge
Boston MSA (-4.9%)
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics
Universe: 245 U.S. Metro Areas
0.20
0.10
0.00
-0.10
-0.20
$1,600$1,400$1,200$1,000$800$600$400
Quadratic
Observed
Monthly Housing Cost
Employment Change (%) (2000-2004)
Boston MSA
%∆Emp(2000-2004) =
-.1466 +.0000396 Housing Cost (4.07) -2.291E-007 Housing Cost SQ (4.04)
N = 245 Adj. R Square = .056
Employment Growth (%) (2000-2004)
-1%
0%
1%
2%
3%
1 2 3 4 5 6 7 8 9 10
Cost of Living Decile
Per
cent
Cha
nge
Low Cost High 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
Internal Net Migration (%) (2000-2004)
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
1 2 3 4 5 6 7 8 9 10
Housing Cost Decile
Decil
e P
erc
en
t
Boston MSA (-5.2%)
Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census
Universe: 304 U.S. Metro Areas
0.1500
0.1000
0.0500
0.0000
-0.0500
-0.1000
-0.1500
$1,600$1,400$1,200$1,000$800$600$400
Monthly Housing Costs
Quadratic
Observed
Internal Migration (% Change)
Internal Migration (% Change)
Monthly Housing Cost
Boston MSA
%∆Internal Migration =
- .146 + .000399 Housing Costs (7.03) - 2.475E-007 Housing Costs SQ (7.39)
N = 304 Adj. R Square = .153
0.1500
0.1000
0.0500
0.0000
-0.0500
-0.1000
-0.1500
$1,600$1,400$1,200$1,000$800$600$400
Monthly Housing Costs
Quadratic
Observed
Internal Migration (% Change)
Internal Migration (% Change)
Monthly Housing Cost
Boston MSA
%∆Internal Migration =
- .146 + .000399 Housing Costs (7.03) - 2.475E-007 Housing Costs SQ (7.39)
N = 304 Adj. R Square = .153
San FranciscoStamford-NorwalkSan JoseBostonOaklandNassau-Suffolk
Internal Net Migration (2000-2004)
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
1 2 3 4 5 6 7 8 9 10
Cost of Living Decile
Dec
ile
Per
cen
t
-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?
Hou
sing
Pric
e A
ppre
ciat
ion
(199
5-20
05)
Housing Price Appreciation vs. Vacancy Rates
Office of Federal Housing Enterprise Oversight; U.S. Census Bureau
Universe: 75 U.S. Metro Areas
350.00
300.00
250.00
200.00
150.00
100.00
50.00
6.005.004.003.002.001.000.00
Average Vacancy Rate (2002-2004)
Cubic
Observed
Housing Price Appreciation vs. Vacancy Rates
Office of Federal Housing Enterprise Oversight; U.S. Census Bureau
Universe: 75 U.S. Metro Areas
Hou
sing
Pric
e A
ppre
ciat
ion
(199
5-20
05)
Housing Price Decline – Metro Areas
Peak Qtr. HPI IndexTrough Qtr.
HPI Index %CHG Recovery
Gary, IN 1981:I 63.42 1984:III 56.68 -10.6% 7 years
BOSTON, MA 1988:IV 112.95 1992:II 99.2 -12.2% 9 years
Duluth, MN 1988:II 114.18 1991:III 99.27 -13.1% 11 years
WORCESTER, MA 1989:IV 117.26 1995:I 100 -14.7% 9 years
SPRINGFIELD, MA 1989:iv 117.43 1995:i 100 -14.8% 11 years
Honolulu, HI 1993:II 101.55 1999:III 84.69 -16.6% 9 years
Detroit, MI 1981:IV 61.29 1982:IV 49.69 -18.9% 5 years
Hartford, CN 1988:III 126.4 1995:I 100 -20.9% 13 years
Los Angeles, CA 1990:III 127.16 1996:III 99.7 -21.6% 12 years
Lafayette, LA 1982:iii 115.27 1988:IV 65.53 -43.2% 15 years
U.S. Office of Federal Housing Enterprise Oversight
Boston MSA Housing Price Index
90
95
100
105
110
115
1 3 5 7 9 11 13 15 17 19 21 23 25 27
1988:2nd Q - 1994:4th Q
HP
I - 12.2%
U.S. Office of Federal Housing Enterprise Oversight
1988:4th Q – 1992:2nd 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 -- $ 10,000 201-500 units -- $350,000 21-100 units -- $ 75,000 over 500 units -- $600,000 101-200 -- $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 SSchool 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 1995-2004
2005: Appreciation of only 1-3% 2006: Average Price Decline < 3% 2007-2009: Average Price Increase:
<+3%/year
NEEP Housing Price Forecast
-5.00.05.0
10.015.020.0
04Q1 05Q1 06Q1 07Q1 08Q1 09Q1
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