Boston’s luxury housing boom slows down
The epic building boom that has added thousands of luxury housing units in the Boston area may have peaked, as a report to be released Tuesday by an influential foundation suggests the region has run out of customers willing to shell out huge sums in monthly rents.
The Boston Foundation says the number of permits for new housing units issued in Eastern Massachusetts is expected to fall by nearly 20 percent this year, the first decline since the most recent surge of construction began in 2011.
Housing specialists attribute the drop-off to the higher end of the housing market, where units can rent for $3,000 a month or more in and around Boston. What’s not clear, they say, is if the slowdown is a blip or a longer-term shift at a time when the addition of new units was just starting to dampen rents across the market.
The city of Boston itself, for example, is predicting a strong year for new housing — much of it for middle-income residents.
“We’ve satisfied very-high-end demand, and so the number of luxury buildings is slowing down,” said Barry Bluestone, a housing economist at Northeastern University and author of the Boston Foundation report. “We haven’t seen much [building for] the middle and lower ends of the market.”
Bluestone and others blame high development costs, including the prices for buildable land, and tight zoning rules as reasons for the limited construction of modestly priced housing in outer Boston neighborhoods and in many suburbs.
Yet in a region with a growing population of young renters, there’s still huge demand for moderately priced housing, said Rebecca Koepnick, director of neighborhoods and housing at the Boston Foundation.
“A slowdown would not be good for the region,” Koepnick said. “This is where the rubber hits the road. Are people willing to accept extremely high housing prices, as opposed to making some of the changes that need to be made in terms of how and where we build?”
The drop in permits comes as rent increases have eased. The average monthly rent for an apartment in Greater Boston was $2,335 in October, according to the data firm Axiometrics. That was up 1 percent from a year earlier, the slowest rate of growth in 2½ years.
Many real estate specialists believe the thousands of new units that have come onto the market recently have kept rent increases in check, and that without more new supply the prices will start to rise again.
The foundation estimates that Eastern Massachusetts municipalities will issue 11,386 housing permits in 2016. That would be down 18 percent from 2015, which was the busiest year for Boston-area builders in a decade.
Still, this year is on track to roughly match the strong construction numbers in 2014. And, in some places, officials see a backlog of buildings that are planned but not yet permitted.
In Boston, where Mayor Martin J. Walsh has made adding housing a top priority, building permits so far this year are down 42 percent from last year, with 2,683 through mid-November, compared to 4,608 in all of 2015.
But there are more than 5,000 units approved by the city that don’t yet have permits, said Boston’s housing chief, Sheila Dillon, including several large projects in outer neighborhoods that would be aimed at middle-income customers. If those projects go forward, as she expects many will, 2016 would wind up being another banner year.
“Large investments have already been made in those developments,” Dillon said. “I’m not worried at this point.”
Still, Dillon acknowledged the fine line that city officials must walk. They want to keep rents in check and produce new housing that more people can afford. But too much new construction could depress rents to the point that developers stop building.
“We’re hoping to see rents and prices moderate,” she said. “But we’re also hoping that rents and prices remain high enough to make development work.”
And any broader solution to high housing costs has to stretch far beyond Boston, said Clark Ziegler, executive director of the Massachusetts Housing Partnership.
The state needs to add 17,000 units a year over the next two decades just to keep up with estimated population growth, he said, mostly in Greater Boston. Yet in many suburban towns, new multi-family housing — at any price — is nearly nonexistent.
“You see a relatively small number of cities accounting for most new housing production in the state,” he said. “It’s just not sustainable.”
That pushes builders into a relatively small handful of places, said Jay Doherty, the chief executive of Cabot, Cabot & Forbes, which has recently built middle-income apartments in Quincy and the Alewife section of Cambridge. Or it pushes them to build for the downtown Boston luxury market. But in many suburbs and city neighborhoods, demand far outstrips supply.
“Sites get tougher. Permits get tougher. And the cost equation gets harder,” Doherty said.
“It all gets tougher, so it’s not surprising to see some shrinkage in [housing] production.”