The MassachusettsHousing Challenge

Barry Bluestone

Center for Urban and Regional PolicyNortheastern University

Greater Boston Real Estate BoardLINK 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

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

Employment Trend

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. vs. Massachusetts

Employment Growth

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

% C

han

ge

Sin

ce

Ye

ar

Earl

ier

U.S. Massachusetts

Source: Bureau of Labor Statistics, Payroll Employment

Greater Boston MSA Real Median Household Income 1969-1999 ($2004)

$45,496$47,371

$60,886$61,796

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

1969 1979 1989 1999

Greater BostonReal Median Household Income ($2004)

$60,784

$63,546 $63,496

$60,466

$61,333

$58,500

$59,000

$59,500

$60,000

$60,500

$61,000

$61,500

$62,000

$62,500

$63,000

$63,500

$64,000

in $

Do

llars

2000 2001 2002 2003 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 2000-2004

3310 3311 33043296

3275

3100

3150

3200

3250

3300

3350

in T

ho

us

an

ds

2000 2001 2002 2003 2004

Massachusetts Net Migration 2000-2004

32,268 32,244 31,555 31,535

-14,244

-28,074

-47,776

-58,910-70,000

-50,000

-30,000

-10,000

10,000

30,000

50,000

2000-01 2001-02 2002-03 2003-04

Figure 2.3

Population Change by Age Cohort Boston PMSA 2001-2003

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Un

de

r 5

yea

rs

5 t

o 1

9ye

ars

20

to

24

yea

rs

25

to

34

yea

rs

35

to

54

yea

rs

55

to

64

yea

rs

65

ye

ars

+

Change 2001-2003

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

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

Figure 2.1Total Annual Family Budget for a Family of Four

Boston, MA vs. Competitor Regions

$64,656

$61,440

$58,656 $57,624

$54,948

$47,520

$44,124 $43,704 $43,584 $43,452

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

Re gion

Tota

l Ann

ual F

amily

Bud

get

A Tale of Two CitiesBasic 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

$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

1998 2000 2001 2002 2003 2004

Below $100,000 4 0 0 0 0 0

$100,000 - $199,999 82 41 14 5 0 0

$200,000 - $299,999 50 68 74 62 43 19

$300,000 - $399,999 16 32 42 52 61 74

$400,000 - $499,999 4 10 12 22 30 33

$500,000 - $999,999 4 9 18 19 25 33

$1,000,000 and Above 0 0 0 0 1 1

# of Communities with Median Single Family Sales Price

1998 2000 2001 2002 2003 2004

Below $300,000 85.0% 68.1% 55.0% 41.9% 26.9% 11.9%

$300,000 - $499,999 12.5% 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

Figure 3.5Historical Construction Costs

60.0

80.0

100.0

120.0

140.0

160.0

180.0

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

Year

RS

Me

an

s I

nd

ex

(3

0 C

ity N

atl

Av

g b

as

e,

19

93

=

10

0

Boston Natl 30 City Average

Figure 3.6Impact of Rising Construction Costs

$140,000

$150,000

$160,000

$170,000

$180,000

$190,000

$200,000

$210,000

2001 2002 2003 2004 2005

Construction Cost/Unit

Figure 3.1Housing Units Permitted

Boston PMSA

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

5+ units 1-4 units

Year Total Units Permitted

Units in Single Family

Structures

Single Family

Units as % of Total

Units in 2-4 Unit

Structures

Units in 5+ Unit

Structures

1998 10,846 8,639 79.70% 574 1,633

1999 10,662 7,775 72.90% 746 2,141

2000 10,342 7,102 68.70% 701 2,539

2001 9,701 6,313 65.10% 686 2,702

2002 9,520 6,408 67.30% 764 2,348

2003 12,121 6,020 49.70% 1,093 5,003

2004 13,556 7,000 51.60% 994 5,562

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

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