This story mentions an interesting way to deflate the bubble: take the cities and towns to court!
>A community about 25 miles northeast of Philadelphia, Mount Laurel is the Wellesley of southern New Jersey, with high home prices that have seemingly always been high. In the 1970s, a woman named Ethel Lawrence teamed up with three enterprising lawyers and the NAACP to file a lawsuit alleging that people of modest means were being shut out of places like Mount Laurel - that the town's nice homes and good schools were unavailable to people who couldn't pay the price of admission. Despite the involvement of the NAACP, the suit wasn't centered on race so much as income.
>To the surprise of some legal scholars, in 1975, New Jersey's Supreme Court sided with Lawrence.
boston.com
Through the Roof
Why the state's red-hot real estate market could end up hurting the economy, harming the environment, and landing the suburbs in court.
By Anthony Flint, Globe Staff, 3/9/2003
It seems so naive now, almost quaint, the way they all set out to become homeowners, bright-eyed and determined and ready with their tidy list of requirements: a price of $200,000 to $300,000, in or close to Boston, a place with some space, a community with good schools. That was before the double takes at the newspaper listings on Sundays, before the pitying chuckles of the real estate agents, before the packed open houses and the bidding wars and the one-hour car trips to towns they'd never even heard of. That was before the Massachusetts real estate market chewed them up and spit them out.
For Teresa Murray, the first sign of trouble came with the two-family in Roslindale that got 27 bids and a winning offer $80,000 above the $329,000 asking price. Then there was the fixer-upper listed at $239,000 in Mattapan, another dreary ranch in Randolph, and finally the day she found herself in Attleboro, staring blankly at newly built homes in anonymous subdivisions going for $350,000 and up. Two years after starting the search, Murray, 40, is still paying rent in Jamaica Plain - just more of it, having been ousted from her one-bedroom apartment that was converted to a condominium.
Ted LaCrone tells a similar tale. Hunting for condominiums in the price range of $200,000 after his daughter was born two years ago, he found properties he describes as "tiny, crummy, and depressing" - and not very many of them. He wanted to stay in Cambridge, where he knew his Cambridgeport neighbors and the staff at his daughter's day-care center, but wound up looking in southern New Hampshire and northern Rhode Island. Unwilling to spend three hours a day commuting, he quit his job with the city of Cambridge, and his wife quit her job as a social worker, and they moved last year to Gardiner, Maine, 45 minutes outside of Augusta.
Then there's Anne Goddard and her husband, Shawn Sullivan, who returned to Massachusetts three years ago after renting in San Francisco. They expected some sticker shock, but their hopes of finding a single-family home within Interstate 495 for less than $300,000 were quickly dashed. They looked in Hudson and then in Framingham, where their price requirement led them to a rickety house "that looked like it had been taken apart and put back together - and it was still a rabbit warren." Sullivan's parents saved the day by selling the young couple their own house in Haverhill.
"We weren't prepared for this," Goddard says, juggling the needs of her infant daughter and 3-year-old son in the warm confines of their 1910 house. "We had a romantic notion that we were coming home, so it would be easier somehow, but in terms of housing, it was the same deal. Just with more snow."
Actually, Goddard and Sullivan, the LaCrones, and Murray all might have had better luck in San Francisco, which has historically registered the highest home prices in the nation but in recent months has seen some moderation, starting with rentals, generally attributed to the dot-com bust. It might have been a fair assumption that the same thing would happen in Massachusetts, where unemployment is up and the fortunes of once high-flying technology companies have flagged. But nothing of the kind has transpired. The Bay State barrels forward. The market has softened for $1 million-plus luxury properties and some rentals, but sellers are still in charge for homes priced under $600,000.
And so it is that Massachusetts has become the Energizer Bunny of the nation's real estate markets, profoundly resilient, seemingly impervious to outside economic conditions; the market keeps soaring even as the bottom drops out.
For the people lucky enough to be homeowners, it's a market that is richly rewarding. For some, it's been a ticket to luxurious retirement or a trade-up to a suburb they've always dreamed of calling home. For the real estate industry, needless to say, the market is an utterly joyful phenomenon. But some consequences aren't worth bragging about.
People searching for a home they can afford are looking farther and farther from Boston - "drive till you qualify" is the realtors' phrase - leading developers to build single-family subdivisions on farmland and woods beyond I-495. Land is used up, and more cars are added to already congested roadways. The red-hot market also could ultimately hurt the state's economic competitiveness, as skilled workers give up on the house hunt, leave the state, or, just as commonly, refuse to relocate here because of the costs. Entry-level jobs could be hit even harder.
In the worst-case scenario, social stratification intensifies, the economy is drained of its diversity, and suburban towns turn inward as exclusive enclaves - so much so that a family sues, alleging that it is being deprived of constitutional guarantees for at least a shot at the American dream. Far-fetched? Not really. That's what happened in New Jersey, where judges tell wealthy communities they must build thousands of units of more-dense housing, and they don't really care if residents say the projects will worsen traffic or overburden schools.
The worry, in short, is not so much a fear that the real estate bubble will burst in Massachusetts. It's what will happen if it doesn't.
t's a pretty amazing market," says Karl E. "Chip" Case, an economist at Wellesley College and someone not given to hyperbole. "I don't quite get it. The softness is not there, but the economy is where we were in 1989" - that is, in bad shape.
Nationally, the nine-year run-up in housing prices looked as if it might finally be pulling back late last year. Prices declined slightly in Seattle, Houston, and Cincinnati, according to the Office of Federal Housing Enterprise Oversight, and rents declined nationally about 1 percent in the fourth quarter of 2002. But the year finished off strong: 5.6 million homes sold across the country in 2002, up 5 percent over 2001. War and higher interest rates could alter the trend this year, but Brad Inman, publisher of "Inman News," a real estate newsletter, speaks for most experts when he says that the bubble won't likely burst but rather gradually deflate.
In the Massachusetts market, meanwhile, the dips have been fleeting and the gains magnified. The median price of a home in Greater Boston hit $395,900 last year, according to the Massachusetts Association of Realtors - roughly 2 1/2 times the national median. In 2002, 46,769 single-family homes were sold in Massachusetts, a 5.1 percent increase over 2001, according to the association. The average selling price was $346,019, up 12 percent over 2001; the average condo price was $243,951, up 16 percent over 2001. Greater Boston had the most expensive average price for a single-family house: $498,180.
"We still see a steady pace. I even had a showing on Super Bowl Sunday," says Carolyn Chodat of the Medway-based Classic Properties, who sees clients flooding into the relative bargain areas west of I-495 like Northbridge, Uxbridge, and tiny Millville, on the Rhode Island border. "I think it's going to be a good spring."
Spending under a half-million dollars, of course, is what most people looking for a home have in mind. So for them, the puzzling question remains: Why? Why are prices so high, and why do they stay that way? What's so different about Massachusetts?
To pick some early and only slightly arbitrary culprits, wind the clock back and blame the Atlantic Ocean, the Pilgrims, and Harvard.
As the oldest continuously settled part of the Republic, Massachusetts has had lots of time to fill in the nooks and crannies of buildable land in every direction but east, because of the ocean. So the region is mature and confined geographically - and, for most of the past decade especially, economically robust and thus a popular place to be. Massachusetts is home to a greater diversity of ideas-based, information-based businesses than other parts of the country, helped in large part by the presence of the colleges, universities, and research laboratories that attract a skilled work force. "It's why we're not Detroit," says Harvard economist Edward Glaeser.
But it's not all new people moving in and looking for a place to live. Indeed, Massachusetts grew by just 332,672 people from 1990 to 2000, bringing the total population to 6.3 million, according to the US Census. That was an increase of just 5.5 percent. The new arrivals are joined by legions of people already here who have jumped into the home-buying market. In what analysts call "household sprawl," there are fewer people under each roof today: more singles, divorced people, or young people who leave the nest. Where there historically were at least 12 people in a triple-decker, there now may only be four - a professional couple on the upper floors and two tenants on the first floor. The number of Massachusetts households expanded by 130,000 in the 1990s, according to Harvard's Joint Center for Housing Studies.
Immigrants, as well, are boosting the number of would-be home buyers. Not so much the most recent arrivals, who double or triple up in apartments and work in entry-level jobs, but the foreign-born who have been here for five or 10 years and have saved up the down payment or are well-paid workers at technology or biotech companies and are looking for single-family homes in the suburbs, just like everybody else.
Toss in the availability of 30-year fixed mortgages at an interest rate as low as 5.75 percent - the lowest rates in 40 years - and the popularity of real estate as a sounder investment than the stock market, and the result is a mountain of demand.
And the supply? In normal circumstances, when a bunch of people clamor for a product, the market responds by making more of it. But in Massachusetts, the supply of housing hasn't increased much, despite the obvious business opportunity. A report last fall by The Boston Foundation, Northeastern University, and the Citizens Housing and Planning Association found that the number of new homes produced each year actually declined from an average of 8,460 in the late 1990s to 8,194 in 2000. That decline - the driving force behind home prices soaring 50 percent in Greater Boston between 1998 and 2002 - has been the subject of much analysis and soul-searching.
The root of the problem, developers say, is that there isn't enough land to build on - not so much a physical scarcity as a scarcity of land that cities and towns are willing to allow development on. "We actually have lots of land," says Charles C. Euchner, head of the Rappaport Institute for Greater Boston at Harvard's Kennedy School of Government. It's marbled throughout the areas already built up, including empty lots and parcels near transit stations, he says. But local residents opposed to further development can veto proposals in classic not-in-my-backyard fashion - especially housing proposals with lots of units, partly due to fear of overloading the school system, partly due to concern about home values.
The NIMBY crowd is enabled by local zoning rules and land-use regulations, some of which actually prohibit multifamily residential developments, Euchner says. About 45 communities have passed slow-growth or no-growth measures on top of the existing rules, such as caps on building permits per year. What ends up being built are large-lot, single-family subdivisions: by definition, more expensive homes, and not very many of them.
When any type of residential development does manage to get local approval, the process for actually getting a project built is costly and time-consuming. "The other night [at a planning board meeting], in Plainville, we had a wetlands biologist, a civil engineer, a lawyer, a landscape architect, and myself," says David Wluka, a Sharon-based realtor and development consultant. "That was probably $2,000 an hour, and all the questions didn't get answered, so another meeting was scheduled. It's not unusual for the cost of the permitting process to become as much as the cost of the land."
High labor costs, the cost of land, and low interest rates all form the foundation for inflated prices, but it is the squeezing off of supply and the constraints on developable land that intensify everything. So that duplex in the South End and that bungalow in Newton can sell for twice what they went for a few years ago, because of fundamentals like location and quality - but also because those properties are in a marketplace that has been shrunk to boutique proportions.
o the retired firefighter who hits the jackpot and uses the $300,000 profit from selling his single-family home in South Boston to move to Braintree or Hingham or Florida, there's not much to complain about. But an untamed housing market can actually wreak havoc.
The continual movement outward from Boston is perhaps the least efficient way to provide housing, says Marc Draisen, executive director of the Metropolitan Area Planning Council. Single-family subdivisions burn through the land quickly, and inevitably the boomtown of the moment fills up and closes the door on further development, pushing the subdivisions to the next town over. If that goes on past Worcester, he says, whole swaths of Eastern Massachusetts will choke on traffic and pollution, and there won't be much in the way of woods and farms.
Yet, "outward" remains the guiding principle in the search for a home in Massachusetts - southeast to Plymouth, south to Attleboro, southwest to Franklin and Bellingham and Milford, west to Grafton, northwest from Sterling and Bolton, all the way to Westminster, and north to Tyngsborough, Methuen, and, reliably, southern New Hampshire. Wluka, the Sharon broker, says he recently had a client who went through a typical outward progression: starting in Cohasset and Scituate, then on to Stoughton, Foxborough, North Franklin, and Attleboro, and winding up in Woonsocket and Cumberland in Rhode Island. The way things are now, driving to where the affordable homes are is a necessity. But it's a classic road map of sprawl.
What's equally messy is what could happen to the state's economic profile. Families earning the median income in the Boston area - about $60,000 - can afford the monthly payments for a $250,000 home; that's if they can save enough for a down payment. "It gets hard with all the expenditures - car insurance, preschool, rent - to squirrel that money away," says house hunter Acia Adams Heath, a financial assistant at MIT. Taking on a lot of debt to buy a home is also daunting, she says: "I feel like we'd be eating peanut butter sandwiches for a year."
But even those eager to spend often can't break into this market. After a year of looking, Heath and her husband, both 28, have been unable to find anything acceptable, even in the $300,000 range. They have found mostly unimpressive condos in Boston, where they prefer to raise their daughter, now 3. It's especially galling, Heath says, because she and her husband make proportionately more money than those in her parents' generation did when they were buying houses. And friends around the nation aren't having this problem. "Speaking to my family in Atlanta, they're like, `What do you mean you can't find a home? You guys are not low-income. What are you talking about?' But up here, we are."
The problem is compounded when teachers, police officers, municipal workers, hospital staff, and retail employees can't afford to live where they want or near the community where they work and end up leaving the state, because long commutes are ruining their quality of life. If that keeps happening, there won't be enough people to fill the range and diversity of jobs, from entry-level on up, that make up a healthy economy. And lately that concern is extending to better-paid professionals. The Massachusetts Technology Collaborative recently warned that, more and more, workers are unwilling to relocate here. Prospective employees know what they can sell their house for in Atlanta or the Midwest, and they discover they can't buy anything closely equivalent in Massachusetts with the proceeds. One Harvard official says there have been a number of doctors who are turning down assignments at Massachusetts General Hospital because area housing costs are too high.
"We had friends in New York, Chicago, and Atlanta who moved home to Louisville, and they were getting nice, older homes in well-established neighborhoods with good schools," says Rebecca Matheny, who grew up in Kentucky and lives with her husband and their new baby in Somerville. In Louisville, she says, you can get a nice older home for the price of a ho-hum two-bedroom condo in Somerville. The last straw was the newly constructed unit on the site of a former gas station in Somerville that went for nearly $300,000 - what a friend recently paid for a place in Manhattan. "When condos in Somerville are costing the same as the Upper West Side, it just seems irrational. Something seems askew."
Matheny, who works for the Cambridge Housing Authority, worries about paying top dollar and then having the condo market crash, and she refuses to make a long commute in exchange for a home outside of I-495. Her husband, Michael Relish, is a software manager, and together they make well over the median income. So it's not that she couldn't find anything, she explains. She just couldn't find anything to maintain her quality of life.
Unable to buy or unwilling to buy - both result in the same erosion of the region's economic mosaic. But business leaders find it particularly unnerving that the most skilled, well-educated, and creative people would make the calculation and conclude that Massachusetts just isn't worth it. "We have options, and we're exercising one of them," says Matheny. "We're leaving."
or all the fretting about the red-hot market's downside, housing remains a largely invisible crisis: The outflow of people is hard to track; the state will still be here in five years even if nothing is done about housing; and there is no simple solution, short of giving everyone who makes less than $60,000 a subsidy for shelter costs. Government-assisted housing projects are notoriously expensive per unit and hardly seem to make a dent in the problem. Under the Community Preservation Act, Hopkinton voted for a tax surcharge in part to boost affordable housing. The town is spending $100,000 just to move a "free" house donated by the Hopkinton-based EMC Corp. that will create exactly two units of affordable housing.
"When the market swoops in, it's incredibly difficult" to intervene, much less tame it, says Alan Mallach, a fellow at the National Housing Institute, based in Orange, New Jersey. "Usually you're too early or you're too late. The best you can do is work at the edges and eke out a unit here and a unit there."
There are also those who believe that it's pointless to try to manage this kind of a market, anyway. It's expensive to live here, this line of thinking goes, but our wages are higher, and what's wrong with a lot of wealth, anyway? If an entire page in the Sunday real estate section doesn't boast a home for less than $600,000, we must be doing something right. We're in the league with San Francisco or New York.
Yet, most planners and those in Governor Mitt Romney's administration remain convinced that prices need to be reined in, to keep Massachusetts from becoming a victim of its own success. And the handiest way to do that is to increase supply.
Led by Douglas Foy, former president of the Conservation Law Foundation and now ubersecretary for state development, housing, transportation, and the environment, the Romney team wants to see more housing built - but not just anywhere. The governor wants the new housing to be targeted in urban areas that are already "infrastructure rich," meaning near transit or commuter rail. It's a kill-two-birds-with-one-stone approach: tame the affordable-housing crisis while curbing sprawl.
How to steer growth to where you want it to go? Streamline the permitting process and cut red tape in urban areas served by transit or rail, like Salem, Brockton, or the end of the Orange Line at the Malden-Melrose line, all of which should welcome revitalization. Build housing on closed state hospital sites and land owned by the MBTA - the largest single landowner in Eastern Massachusetts. To get notoriously independent communities to change their zoning to allow dense development at town centers and near rail lines, dangle incentives - boosts in state aid to match expanded services, such as funding for schools, or in these tight fiscal times, less-harsh cuts in state aid.
"We're at a point where we need to make a grand bargain, like the one we made with schools 10 years ago, which was money in exchange for standards. Here, it would be money for local embrace of housing," says the Rappaport Institute's Euchner. "You're asking towns to do something that doesn't benefit them but instead benefits the region." As an added incentive, he says, communities that agree to more housing could be let off the hook for Chapter 40B, the controversial state law that fast-tracks residential projects in cities and towns with less than 10 percent affordable housing.
There's a willing market for living in cities or compact town centers - between 30 and 40 percent of home buyers prefer to be able to walk to the corner store, says Andres Duany, principal in the Miami-based architectural firm Duany Plater-Zyberk and a founding member of the Congress for the New Urbanism.
Local developers agree that most of them would gladly build more-dense developments if they were allowed to. "They're building 200 units in North Andover, because that's where the system lets them build," says Greg Bialecki, real estate attorney at Piper Rudnick in Boston. "It's the path of least resistance." Says broker Wluka: "If they allowed homes on smaller lots, people would buy them. Others would still pay a premium for more space. But right now, there isn't a lot of choice."
Even providing more choice is fraught with pitfalls, however. Romney might find that most people still want single-family homes in the suburbs and are unwilling to move to cities because of perceived sub-par schools. At the macro level, when governments try to manage and control the development of housing, they can end up boosting home prices even higher. Portland, Oregon's, urban growth boundary, for example, is intended to make more efficient use of urbanized land through greater density. But it is itself a constraint on supply; no major development is allowed outside of the boundary line.
"In a hot housing market, trying to direct the new supply of housing into particular neighborhoods and regions runs a very real risk of reducing housing affordability," says Samuel Staley, senior fellow at the Reason Public Policy Institute in Los Angeles. "It continues to limit supply in the places where people want to buy homes. A supply solution is the only answer, but it has to be housing that people want - not where government officials or planners want them to live."
Sprawl, the argument goes, is supply unchained - the surest way to meet demand is to build the houses wherever they can be built and not, uncoincidentally, where most people want to live. Developers freed from one set of regulations should not be corralled in new and different ways, says Benjamin Fierro, lobbyist for the Home Builders Association of Massachusetts. "We need local zoning reform more than state zoning reform," he says.
Part of the skepticism about managing growth comes from the pure free-market philosophy of builders. But while builders insist that they are on the same page as environmentalists and planners who want smart growth, some housing advocates are privately dubious that the state can dictate the type and location of the homes that get built. The rallying cry here is: just more homes, period. The anti-sprawl crowd says that smart growth and affordable housing are synonymous, but the relationship between growth management and home prices is still being studied.
For Romney, increasing supply through sprawl is not really an option; his suburban constituencies would revolt. But the success of his plan to increase the housing supply in urban areas will depend on how much help he's willing to give those places to become more attractive "receiving zones" for housing, says Bialecki. And at the moment, there isn't a lot of money to throw around.
hat if nothing is done - if the Acia Heaths of the world just remain on the outside looking in, unable to get into the game of home ownership? What if demand remains high, supply low, and the Massachusetts real estate market simply hurtles on? The leafy New Jersey suburb of Mount Laurel provides one possible answer.
A community about 25 miles northeast of Philadelphia, Mount Laurel is the Wellesley of southern New Jersey, with high home prices that have seemingly always been high. In the 1970s, a woman named Ethel Lawrence teamed up with three enterprising lawyers and the NAACP to file a lawsuit alleging that people of modest means were being shut out of places like Mount Laurel - that the town's nice homes and good schools were unavailable to people who couldn't pay the price of admission. Despite the involvement of the NAACP, the suit wasn't centered on race so much as income.
To the surprise of some legal scholars, in 1975, New Jersey's Supreme Court sided with Lawrence. The justices deemed that the state constitution guaranteed its citizens due process and equal protection, and that those concepts were violated in communities where low- and moderate-income families were denied the opportunity to buy a home. In the original ruling, wealthy suburbs were commanded to provide affordable housing. In progressively tougher rulings since then, they were basically forced to open themselves up to builders.
The so-called builder's-remedy solution required that the towns pass inclusionary zoning ordinances and "density bonuses" that brought about a mix of market-rate and affordable units. Similar to court-ordered desegregation of schools, the mandate has more teeth than Chapter 40B, which is based on legislation and can be repealed at any time. With the judiciary making sure it got done, 30,000 units of affordable housing have come on line in the last 20 years.
Jerold Kayden, a professor at Harvard Design School, believes what happened in New Jersey could happen here. "If the political branches of government don't get their act together," he says, "they could find themselves hauled before judges, who end up dictating the future course of planning and development."
All it would take, he says, is a few exasperated families that want to live in the suburbs but can't. They could claim they are being denied their shot at the American dream and denied the chance to give their kids a good education. A lawyer or legal scholar could make quite a name for himself preparing a Mount Laurel-style lawsuit; the surprise for some is that it hasn't been filed already. Here, the partying is going on until 4 in the morning. Everybody's just waiting for the cops to show up.
If a Mount Laurel-style lawsuit is indeed a credible threat, maintaining the status quo becomes the ultimate gamble: Do nothing about a real estate market that is out of reach for many thousands and risk having the courts step in and force a solution. Increasing the supply of housing is the move most everyone agrees on; the where and how are tougher calls. Targeting built-up places over virgin soil is inarguably friendlier to the planet; it boggles the mind to think of Belchertown as Boston's next big bedroom community. Existing cities are surely part of the answer, but existing suburbs are, too. They can usher in cozy, compact development in their town centers, as Canton and Gloucester have done. Communities without such centers, like Bolton, will have to be extra creative to bring a portion of their housing stock within reach.
But whether town or country, a new paradigm for development - one that allows more of it in the most sensible places - seems necessary to increase supply and bring home prices under control. The LaCrones and the Mathenys got frustrated and shut out of the market and decided to leave the state. Others in the future might decide to stay and sue.
Anthony Flint covers planning and development for the Globe. |
