Study Finds Supply Shortage at the Heart of Greater Boston Housing Crisis

Construction costs, land use regulation and zoning among the reasons why housing development lags growth in jobs, number of households

BOSTON – A new Pioneer Institute study recommends that municipal leaders employ strategies like density bonuses and expedited permitting to prioritize the construction of family-oriented housing in urban areas to combat high prices and supply shortages resulting from decades of insufficient housing development.

“Across the country, housing production has been low since the 2008 financial crisis,” said Andrew Mikula, author of “Supply Stagnation: The Root Cause of Greater Boston’s Housing Crisis and How to Fix It.”  “The housing crisis is especially acute in Boston because supply in the region never bounced back from the 1991 recession.”

As of last November, the median down payment on a house in Greater Boston was $105,300 – more than the region’s annual median income.  The cost of building a typical “starter home” in Massachusetts is 22 percent above the national average – the second highest in the nation.

As of June 2023, the average monthly rent in the City of Boston topped $3,000.

High housing costs are one of the primary reasons that residents are leaving in droves, fleeing to more affordable locations.  Those between 26 and 35 years old, who are just forming families, are the most likely to leave.

From 2010 to 2020, the number of households in Greater Boston increased by 10.7 percent while the number of housing units only rose 7.9 percent.  Not surprisingly, the region’s vacancy rate is consistently well below the national average.

Among the reasons why this trend is likely to continue is Baby Boomers’ desire to “age in place” rather than move in with family members or move to group settings.

From 2002 to 2022, Greater Boston added 3.3 jobs for every housing permit that was granted.  The recommended range is from 0.75 to 1.5 jobs for every permit.  Nationally, the number of homes that were permitted but haven’t begun construction has reached a 39-year high.

There are a number of reasons why housing production is down across the U.S. and in the Boston area.  Nationally, the cost of construction materials was 43 percent higher at the start of this year than in January 2020.  A construction labor shortage also places upward pressure on costs.  At $333,200 in 2023, the cost of an acre of land in Massachusetts is second only to Rhode Island.

Land use regulations and zoning also contribute to low production and high costs.  Despite high population density in Massachusetts, lot sizes are larger than average.  Some Boston suburbs require owners to have an acre or more of contiguous land to build a house.

Rules like parking requirements for new developments can be out of step with residents’ needs.  Most Brookline zoning districts require two off-street parking spaces for each residential unit, even though only 24 percent of town residents have access to two or more vehicles.

Politically, housing development is difficult because the loudest voices in the debate tend to be existing homeowners who want to protect their property values and officials concerned with rising school budgets.  Despite popular belief, numerous studies demonstrate that new construction doesn’t measurably impact surrounding property values and that multi-family homes in particular tend to be fiscally positive.  In addition, declining enrollments in many Boston suburbs should reduce concerns about school overcrowding.

Proposed solutions that don’t address the underlying supply issue are unlikely to help advance housing availability and affordability.  The best known such policy is rent control.  One study found that San Francisco landlords subject to rent control reduced their rental housing stock by 15 percent.

In addition to advocating for density bonuses and expedited permitting, Mikula’s recommendations include diversifying suburban housing by rezoning to accommodate more townhouses, multi-family housing and rentals for young families.

Mikula also cites Federal Housing Choice Vouchers (formerly known as “Section 8 vouchers”) as an effective tool.

 

Andrew Mikula is a Housing Fellow at Pioneer Institute. Beyond housing, Andrew’s research areas of interest include urban planning, economic development, and regulatory reform. He holds a Master’s Degree in Urban Planning from the Harvard Graduate School of Design.