Housing Supply: The Quiet Job Killer Barry Bluestone Director, Center for Urban and Regional Policy Northeastern University Massachusetts Association of.

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