International billionaires have been buying up luxury condos in new buildings in the world’s financial capitals, and the recent announcement of a Four Seasons hotel and 180 luxury units in a planned tower near the Christian Science Plaza has raised concerns that Kremlin cronies, Qatari sheiks, and maestros of Chinese Internet giant Alibaba might be headed to Boston next. Will an influx of international billionaires cause great harm to Boston? Probably not, but a city with a shortage of middle-income rental housing needs a way to make sure builders don’t cater only to demand from the global elite.
The New York and London media have been obsessed with the number of international buyers picking up those cities’ finest properties. Both cities, according to Forbes, have dozens of billionaires of their own, but they have also been attracting foreign investors looking for safe places to park their money. One estimate is that 69 percent of London’s best real estate has been sold to international buyers over the past two years.
Such buyers barely show up in US statistics. One National Association of Realtors report shows 6 percent of American homes are bought by foreign purchasers. But these are typically Canadians buying inexpensive vacation homes in Arizona, not condos in the Back Bay Mandarin Oriental. The US Census’ American Community Survey reports the share of Boston’s households that are headed by foreigners (30 percent) and by individuals earning over $200,000 (6.9 percent). But the overlap between the two groups is minimal.
Taken as a whole, the hyper-rich are such a tiny share of Boston’s market that they can’t possibly be driving prices up in Mattapan or East Boston. Yet it is possible, and even likely, that they are playing a larger role in the city’s toniest areas. According to the real estate website Trulia, prices per square foot have been hovering around $1,000 in Back Bay, Chinatown, Downtown, and Beacon Hill. The presence of international buyers may mean that Boston’s homegrown super-rich will have to pay more for their dream condos.
Few tears will be shed over that fact. Meanwhile, Boston may benefit even if many condo buyers are absentee investors, who pay taxes without using city services. If the buyers do show up, this will mean more demand for Boston businesses.
Nevertheless, it’s fair to worry that robust demand in the hyper-luxury market may have distracted developers from building mid-priced structures. In the short term, developers have limits on their time, financing, and construction capacity. Within those constraints, city officials should encourage them to build as many middle-income housing units as possible.
While the new Christian Science tower represents another dazzling monument in the “high spine” of Boston’s skyline, its 180 housing units won’t make much of a difference in a city with 272,587 units. For $700 million, the developer could have constructed at least 1,500 mid-sized, mid-priced units.
Unfortunately, the city’s affordable-housing requirement hasn’t come close to meeting the need for new units. But the city shouldn’t increase it. Indeed, the structure of those requirements may have boosted this hyper-luxury boom. When developers must set aside 15 percent of built units for rental or sale below market rates, the requirement acts as a per unit tax on development. If a developer builds 180 hyper-luxury units, 27 must be affordable. If a developer builds 1,500 mid-priced units, the requirement would be 225 units.
If we are to have affordability requirements, they should be based on square footage, not the number of units. I’d even argue that the required number of affordable units (or required amount of affordable square footage) should decline if the developer fits more market-rate units onto the same floor plan.
The more important step forward is to complement the standard permitting process with a separate fast-track approval for high-density, mid-sized rental properties. Rental construction is more appropriate for younger, less wealthy residents, and matches well with high density levels. If a project offers enough moderate-sized rental units, then the city can waive other affordability rules and push the project to the top of the approval process. Ideally, in large swaths of Boston, zoning rules would allow such building by right, which would streamline the permitting process.
Luxury buildings still have their place. The Four Seasons at the base of the new tower will house fancy tourists who will support local businesses. Fallen dictators who buy condos there may enjoy checking out their former domains in the Mapparium at the Mary Baker Eddy Library.
Boston should be proud if the city’s success attracts jet-setters who can afford to live anywhere. But the city should also provide a regulatory fast track for builders who want to focus on real people.Edward L. Glaeser, a Harvard economist, is director of the Rappaport Institute for Greater Boston.