Business

Land costs, labor drive Boston-area housing prices out of control

Boston area housing costs hitting extreme levels

Construction underway on One Seaport Square which is opposite the Moakley Federal Courthouse. It will be housing and retail.
John Tlumacki/Globe staff
Construction underway on One Seaport Square which is opposite the Moakley Federal Courthouse. It will be housing and retail.

Boston will be stuck in an endless housing crunch, despite adding tens of thousands of new residences in the past few years, unless it finds a way to curb the rapidly increasing cost of building here, a Boston Foundation report to be released Friday finds.

The study found that surging land costs, along with the already-high price of labor and materials, make it nearly impossible for developers to build new housing most Boston-area residents can afford.

Left unchecked, the report’s authors said, the trend could turn the Boston area into a land mainly of luxury and low-income housing, with no home for the middle.

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“We’ve gotten into extreme territory in terms of lack of affordability here,” said Boston Foundation chief executive Paul Grogan. “We need to get serious about this.”

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The average 1,600 square-foot apartment today costs more than $438,000 to build, said Barry Bluestone, a Northeastern University professor who authored the report.

“You’re just out of the ballpark for any working family,” said Bluestone, who heads Northeastern’s Dukakis Center for Urban and Regional Policy. “The cost is so high that the only construction developers can put up and not lose their shirt is either high luxury or heavily subsidized for the very poor.”

That cost has climbed 13 percent over the last decade or so in urban areas, such as Boston and Quincy, and by 30 percent in suburban markets such as Danvers and Stoughton, according to Bluestone.

Meantime, rents for the average two-bedroom apartment in greater Boston are more than $2,600, 7 percent higher in just the last year and a half, and a record despite high levels of construction. Buying a home is no better bargain. The median price of a unit in a classic Boston triple-decker runs $401,398.

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The report examined about 100 small and mid-sized apartments developments built in eastern Massachusetts over that period. It found that while construction costs — labor and materials — are the largest expenses in any project budget, they have increased just 6 percent. The biggest factor is the soaring price of land, which has surged about 40 percent since the mid-2000s. Meanwhile developers in the suburbs face another steep bill: the cost to fit out suburban sites with streets and sewers has grown more than 80 percent.

Kyle Warwick, a principal at Redgate Capital Partners, which builds in “outer urban” neighborhoods such as Chelsea, Quincy and Revere, said land costs in those communities have doubled in the past five years, from about $20,000 per apartment to $40,000.

“And five years ago, $40,000 per unit for land was a downtown number,” Warwick said. “Now the downtown number is more like $150,000.”

Recent months have seen record prices for land deals, such as the $359 million purchase of 12.5 acres of Seaport Square by WS Development in October, and DivcoWest’s deal to buy the 42-acre NorthPoint site in east Cambridge for $291 million. Even lower-profile sites, especially near MBTA stations, are selling for big sums.

Older homes on Telegraph Street in South Boston.
John Tlumacki/Globe staff
Older homes on Telegraph Street in South Boston.

Those land prices will be built into rents for years to come. The only way to bring them down, Bluestone and others say, is to open up more land. That means rezoning parcels — particularly in suburban towns — to allow more multifamily housing.

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Of the 12,795 housing permits issued this year in the five-county Greater Boston area, according to the report, nearly half have been in three cities: Boston, Everett, and Chelsea. Nearly three dozen suburban towns have permitted 10 or fewer housing units. It’s like that every year, said Rebecca Koepnick, the Foundation’s director of neighborhoods and housing.

“The vast majority of cities and towns in the Greater Boston area are not so open to new housing,” she said. “They have some pretty restrictive rules.”

Changing those rules has long been a priority of housing advocates. This year, housing groups are pushing legislation on Beacon Hill that would require towns to zone for multifamily buildings, and would create incentives for denser development of single-family homes.

These are the sort of things that can help drive down costs, and increase supply, said Clark Ziegler, executive director of the Massachusetts Housing Partnership, which represents affordable housing developers. But he acknowledges those prescriptions have been a tough sell in the past.

“The politics are not easy,” he said. “But I think in the long run it’s unavoidable that the Commonwealth has to address this.”

In the meantime, some local governments are trying to free up more land on their own. Boston has sold about 260 parcels of city-owned land for housing development, said housing chief Sheila Dillon, with another 157 on the way, mostly for single-family homes or small multifamily buildings.

“We’re taking this very seriously,” Dillon said.

In October the Baker administration launched a new push to dispose of state-owned land. One of its priorities is MBTA-owned sites near T and commuter rail stations that have become highly desirable to housing developers.

“That’s definitely the play we’re going for,” said Chrystal Kornegay, Massachusetts undersecretary for housing and community development. “We’re getting lots of interest.”

That’s the sort of thing that can help ease development costs, said David Begelfer, chief executive at NAIOP Massachusetts, a real estate trade group. So would zoning reforms, more university-built housing for students, and lower union labor rates on apartment construction.

“There’s no silver bullet. It’s just a shotgun approach, trying to get a lot of things moving in the same direction,” he said. “But we’ve got to do something.”

Tim Logan can be reached at tim.logan@globe.com. Follow him on Twitter at @bytimlogan.