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Signs point to a housing construction slowdown in Boston area

Boston skyline.
Boston skyline.David L Ryan/Globe Staff

There are growing signs that Boston’s long-running housing boom may soon start to run out of steam.

Building permits for new housing in Boston fell by nearly one-quarter in 2019, city data show. And while the number ticked up 6 percent across the entire area, to the highest level since 2005 as developers migrated from downtown to less-expensive suburban locales, a growing number of those cities and towns have thrown up roadblocks to new projects or elected mayors who promised to slow housing growth.

Meanwhile, the costs of construction and land — especially in the core of the region — have risen steadily. At the same time, rents, while already high, aren’t increasing as fast as they were a few years ago.

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Together, the numbers and trends raise questions about how much longer this wave of construction can be sustained, even though more housing is desperately needed in the Boston area.

“With all these things playing out, you’re putting the brakes on new development,” said David Begelfer, a consultant who long led the real estate trade group NAIOP Massachusetts. “We’re basically reaching a ceiling right now.”

The trouble is, that ceiling includes residential rents at unprecedented heights.

Reis Inc. reported Friday that the average rent in Greater Boston — including all apartment sizes — was $2,349 a month in the fourth quarter of 2019, trailing only New York, San Francisco and San Jose, Calif., among the 79 markets the real estate data firm tracks. One-fourth of Boston-area renters pay half or more of their income for housing, according to the rental website Apartment List.

Political and industry leaders — from Governor Charlie Baker to Boston Mayor Martin J. Walsh to an array of housing experts and advocates — have said the best way to make housing more affordable is to build more of it.

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They have worked to loosen zoning wherever possible and have welcomed developers after decades of relatively little construction in Massachusetts. The efforts have made a difference, to a point: Over the past five years, more than 59,000 houses and apartments have been permitted in Greater Boston, according to Census Bureau data, the best showing over that length of time since at least the 1980s. Those units are now opening, helping to satisfy at least the high end of the market.

It’s a trend that Travis D’Amato, managing director at Walker & Dunlop, a Boston real estate firm, expects to continue in 2020.

“This year is going to be a peak,” D’Amato said. “If you’re looking at larger luxury buildings, this is going to be the highest year we’ve ever seen for new deliveries” of housing stock.

But how much remains in the pipeline is harder to gauge.

While the additional housing is reining in rents, land and construction expenses keep rising. They’ve been climbing faster than rents for several years, said Tom O’Brien, managing director of HYM Investment Group, a development company. That’s squeezing the profit margins for investors who finance new apartment buildings.

In turn, that’s one reason several planned buildings in Boston — such as one at Seaport Square — have lately been flipped from residential to more lucrative uses such as office or lab space.

In addition, developers of mixed-use projects such as the Cambridge Crossing mega-development near the MBTA’s Lechmere Station on the Green Line are constructing office buildings first and deciding to build the housing later.

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“For awhile now, at least for us, the only way to make rental housing work is to combine it into a mixed-use project,” said O’Brien, whose company is redeveloping the Government Center Garage into 2.9 million square feet of housing and office space and is planning a Back Bay-size mixed-use project at Suffolk Downs in East Boston.

“Basically, you underwrite the project so that the commercial or life science component subsidizes the residential,” he said.

As that is happening throughout the Boston area, rising rents and worries about residents being displaced by expensive construction are fueling a political backlash against high-end development. Bills that would enable a tax on pricey real estate sales have been gaining momentum in the Legislature. And some lawmakers are pushing to revive rent control in Massachusetts, while housing advocates want developers either to provide or to pay for more affordable housing.

Political leaders are trying to weigh those needs against how much can be asked of developers without scaring them out of town.

Walsh, who has pledged that Boston will have 69,000 more housing units by 2030, is expected to make housing a major theme of his State of the City address on Tuesday, though aides would not divulge any specifics in advance.

“The city is very interested in maintaining a healthy pipeline of residential construction,” said its housing chief, Sheila Dillon, who noted that projects totaling about 6,500 units are being reviewed for building permits by the Inspectional Services Department, about twice the number permitted last year. Many of them could break ground in the coming months, Dillon said.

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Demand has shifted, however, to communities close to the city such as Malden and Quincy and to suburbs where costs are lower, but where barriers to building are often higher. Zoning rules make it hard if not impossible, for example, to build multifamily projects in many suburbs, according to a 2019 report from a coalition of housing groups.That, they argued, concentrates larger development in a handful of places willing to approve it, driving up prices.

Baker has been trying to break down those barriers, pushing legislation, known as Housing Choice, that would make it easier for cities and towns to approve zoning changes to allow more residential construction. His bill has been stalled for two years, though there were signs of movement last month and advocates are hopeful it will come to a vote this spring.

Robert Korff will be watching. His company, Mark Development, has been working for five years to obtain permits for three housing developments in Newton. That has involved lengthy negotiations with neighbors and city officials. While Baker’s bill wouldn’t be “a silver bullet,” Korff said, “it would help tremendously” and make it easier to add much-needed housing more broadly across the area.

If that doesn’t happen, he said, and Boston keeps getting more expensive to build in, the housing market could stall at precisely the wrong time.

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“The crisis will just get magnified,” he said. “If we’re not adding, costs will continue to climb. It’s simple supply and demand.”


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