I went to the presentation of two reports on housing today at the Federal Reserve Bank of Boston: one by Barry Bluestone of Northeastern’s Center for Urban and Regional Policy, the other by Harvard-KSG-Rappaport Institute’s Edward Glaeser. The Globe had a front-pager on the reports this morning. As I’ve strongly suspected, these reports blame the high cost of housing (bubble?) for the state’s slow job growth and loss of population. We can talk about other factors in our high cost of living: health care, taxes, etc; but this is really the elephant in the living room, so to speak.
Bluestone went through the graphs like a hot knife through butter, and it was a bit dizzying, and a bit scary. This is why population loss matters: we’re losing the 25-34 year-old demographic to other states, where they can afford more house in a nicer neighborhood for less money. The “entry-level”, smaller single-family homes are exactly the homes that we are not building in the state, because of communities’ reluctance to take on the burden of permitting development and then educating their kids. Now, these are also the folks that are critical for economic growth. They are a short-term drain on local resources, but a long-term boon to the economy. Bluestone said, “If you lose them, economically, you’re in trouble.” And brain drain is a huge concern: It’s not necessarily bad to be a high-cost state, if we’re a high value state. If we don’t have the brains, we don’t have the value.
Edward Glaeser of Harvard’s Rappaport Institute made the choice even starker: No homes = no jobs = no people. Glaeser convincingly argued that we’ve got a supply problem. Our zoning system restricts supply, which not only makes housing more expensive (naturally) but also more volatile. Areas that have grown (like Atlanta) have a steadier, slower increase in home values. Ever-provocative, Glaeser warned that without more supply of housing, we run the risk of turning Greater Boston into “a boutique city for educational elites.” Ouch. Glaeser advocates tying local aid restoration to loosening of building rules, and strengthening 40R and 40S (pdf), which provide incentives for new housing supply.
The political quandary is pretty clear: some 60% of Massachusetts residents are homeowners. And, as KSG Dean David Ellwood wryly pointed out in closing, “If prices are too high, then I think we’re saying that we want them to be lower.” And that won’t go over well with property owners who find themselves wealthy from the run-up of the last decade. But it’s pretty clear that our economic future depends on our ability to attract and keep the younger folks who sustain the economy. It would be good to hear our candidates start to talk about this issue boldly.
Later, I’ll have more on the potential solutions that were discussed.
Two words.
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Proposition 2.5.
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That law made turned every community into cost accountants. If you can’t control your revenue, then you can only control your expenses, and everyone sees each new home as a $25k service expense (2.5 kids x $10k) but only bring in $3-5k in taxes.
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I’ve seen people who are involved with town planning who say that towns only start to “break even” at $500k developments. It’s the conventional wisdom.
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I’ve got two more words.
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Riff-Raff.
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A lot of people simply don’t want to live near people who they think will buy cheap housing. They want to “keep the riff-raff out”, and the best, possibly the only legal way to do this is to price them out.
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There is some merit behind this thinking, but only when taken to an extreme. An entire community of low-priced houses doesn’t work, it isn’t viable. But a community devoid of it not only hurts the Commonwealth, it also sets up a unnatural environment.
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“Gee, we must be educating our children right because a town where every house costs more than $500k has good test scores. Oh, ignore those urban areas with all the poor, they’re just not working hard enough.”
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“I don’t understand why we should be subsidizing urban areas — my community is doing just fine, they are just mismanaging. Housing units valued at under $20k? No, that isn’t why they’re having fiscal problems”.
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Problem is, there’s no incentive for wealthy suburbs to take on a burden. They have it all too good, any change will be downhill for them.
see my comment below. it’s a red herring.
The more I read about it, the more I become convinced that Proposition 2.5 is one of the worst ideas this state ever had.
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Consider the two components:
a) The total amount of property tax taken in, town-wide, may not exceed 2.5% of the total property value in that town. Straight-forward enough, and I don’t really have a problem with this. I’m not sure I’ve ever heard of a town with that high a tax rate.
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b) Each town has a levy limit (a maximum amount they can take in), and this levy limit automatically increases by 2.5% per year. A town does not have to levy to the limit; the limit still increases anyways regardless of how much the town taxes. Bear in mind, though, that this is a limit on the total taken in town-wide, not on any given property. (New property construction is added on to the limit and is excluded from this 2.5% increase restriction.)
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2.5%. Two and a half percent! That’s less than inflation! Town budgets are essentially expected to grow at a rate less than inflation. Crazy.
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And people wonder why there are so many overrides, and why education is developing such problems.
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Source and more info:
http://www.dls.state.ma.us/PUBL/MISC/levylimits.pdf
I live in Springfield. I believe that Proposition 2.5 is responsible for many of the problems in that city.
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The problem is that when towns exclude what they consider to be “expensive” residents, they are essentially just pushing those residents elsewhere. They wind up in larger cities like Springfield who don’t have the ability to exclude for historical reasons.
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Some cities like Boston can compensate for that because their economy is relatively robust. But other cities, including New Bedford, Fall River, Lawrence, Holyoke, don’t have the same ability to cope.
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I have heard anecdotes that Springfield gets a disproportionate share of the poor because Boston is so high priced. I did some math based on Section 8 numbers that someone on Masslive.com posted (possibly unreliable) and figured that Springfield has 30 times the Section 8 housing that Boston does, when taking population into account.
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If a town thinks that a $500k house on a 2-acre lot is what is needed to “break even”, then is it any wonder that Springfield is having problems when it has 48-unit apartment buildings taxed at $20k per unit? The taxes don’t even make up for the cost of trash collection. When you consider that poor people have more kids than rich people, the numbers become even more skewed.
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Now consider that you don’t need as much “policing” (code enforcment, law enforcement) when people live 2 acres from each other on cul-de-sacs because they generally aren’t able to bother each other as much.
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This stratification also makes wealthy towns artificially alluring. Service costs are down and most people have a higher ability to pay. It is possible to develop schools that offer more services than many private schools. Who wouldn’t want that?
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And when social problems are concentrated, they become more of a problem. I think any school in the state could adequately educate 5-10% of its population being poor. But when you have a school that is 90% poor, it becomes impossible to manage.
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There is one way I can see this logjam being broken up. The state could attempt to put a true “cost” on affordable housing, and then compensate cities and towns for it. It could do this via a market, maybe an auction — for example, put out a proposal for X units of affordable housing coupled with Y dollars, and if no town bites, raise the dollars until someone bites.
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Another plan would be to index Lottery money by demographics. That means that a doctor living in your town might cost you some lottery money, but a plumber might mean that your payments go up.
If 2.5 were suddenly dropped, towns would likely jack up the tax rates. With our high assessments, the increased property tax bills would be an incentive for many more citizens to leave the state.
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Voters don’t believe politicians when they say they’ll raise some taxes in exchange for lowering others. Because it never happens. Lowell Wicker argued and won this in CT and implemented a personal income tax (circa mid-80’s.) Now CT is a higher tax and higher cost state than MA! And people are fleeing there now as well.
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I already know of 2 semi-retired families in high-priced towns contemplating an out-of-state move because they cannot afford/don’t want to pay their $15,000 property tax bill on their 4-bd suburban Colonials which they bought in ’61 for $23,000. We increase that to $18,000 and we’ll really make up their minds for them.
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That golf community near Hilton Head looks better every day … 4,000 sf home for $450,000, $2,500 taxes annually, 3 great course to play (open all year ’round.) That’s our competition.
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I can’t understand how towns and cities have budget problems every d*mn year. Where’s all that money go?
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Don’t say “the schools.” How does NH consistently score higher on most educational measures (SATs, etc.) and still have one of the lowest per-pupil costs in the US? What does Cambridge do with $16,000 per student? That’s private school tuition.
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Perhaps its the outrageous public sector labor contracts, Cadillac health coverage, fringe benefits, and pension plans.
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Ironically, advocating elimination of Propr 2.5 would make us more like the reviled NH. Hmmm…maybe it’s not a bad idea.
“I can’t understand how towns and cities have budget problems every d*mn year. Where’s all that money go?”
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Health care, which is locally negotiated with the unions. Costs skyrocket, even more than the state’s costs. We need to get cities and towns under the state system, which provides pretty good care, by most estimations.
How many other states have had Proposition 2.5-like laws on the books for a while? I know California does. They’re in the same boat as we are — no development, ridiculous costs. Is that just a coincidence that the two states that have sky-high housing costs have laws that limit growth, and are anti-development?
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Grover Nordquist’s organization wrote a paper praising such levy-limiting laws. He sees them as a way for people to “group themselves”. In other words, they achieve economic segregation, which he likes.
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“Starving the beast” is mostly myth. What really happens is that services get cut to a level where they are generally worthless but still relatively expensive.
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Why is it that people will spend $30k/year on a mortgage to live in a town like Winchester, but don’t want to spend
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I did see something in Washington State that said that the tax levy is constitutionally mandated to be 1% or lower. However, I also found language that said that property taxes make up just 30% of a typical town’s revenue.
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I wonder if such a dramatically low limit actually makes it more likely that the state needs to be a partner with cities and towns. I wonder if Massachusetts hit on an unfortunate number — too high to make the state step up, too low to allow cities and towns to react to issues.
who have followed both the CURP and Harvard reports on housing — the question is do we use the carrot or the stick. or perhaps a carrot and a stick.
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CURP, 40r and s, would be the carrot. Harvard, tying local aid directly to housing stock and zoning regs, would be the stick. Perhaps both are well and good.
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and I’m not sure that a “boutique city” is such a bad thing, this is the “Athens of America” after all. As many have aptly pointed out, there would be no supply shortage without a correspinding abundance in demand.
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what can the candidates do? I’m pretty sure I’ve heard Deval and Gabrieli talk about our fleeing population. I don’t know that they’ve hit the housing piece directly. Following the Harvard model, the governor would be the perfect entity to whip the 351 autonomous fiefdoms into caring about the state as a whole.
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also — and I know CURP has the data on this, although I’m not sure that they’ve talked it up in the most recent housing paper — the education bit is a non-issue. What kind of housing are you building? What are the new densities? and Who’s moving in? Just b/c it’s young families leaving does not mean all the purchasers of new housing stock will be young families. quite the contrary, the new housing stock, if built at greater densities (multifamily, apartments) would likely be bought by more transient demographics, less likely to require school-aid. the young families would buy up the existing 1- and 2-acre homes as the prices come down.
… and Glaeser’s as well, that we need to be building the one-families, not so much the multi-families, to compete with NC, et al.
This is really interesting because the chicken/egg thing with jobs and housing is such an economic quandary.
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As an electoral strategy, I think talking about “increasing affordable housing” works, as does “creating jobs.” But the real discussions about the real problems cannot be summarized in an easy electoral package, which is why this issue doesn’t get as much play as it could or should.
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I’ve heard Deval speak about incentivizing regions to plan better and receive more local aid. But our balkanized zoning and land use system here will never let that happen. Nor will a legislative act pass regionalizing the zoning and land use process because of legislators from wealthy towns protecting their communities’ rights to have big-lot zoning.
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So what do we do to make regional planning and zoning a reality?
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I don’t know the answer, but I bet other states have tried it.
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The Chapter 40’s reforms don’t seem to get us there because the incentive isn’t large enough. Plus, it sets up one-time payments for the most part, so communities will get a one-time cash infusion, but that’s not sustainable if the tax revenues from the new development doesn’t cover the costs to a municipality’s infrastructure.
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So again, what do we do?
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Do we push job creation strategies (a la Silbert) and hope that the demand for housing pushes developers to build more?
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Or do we incentivize developers more with streamlined permitting (which would help job creators too because if they want to build new facilities, they want to do it economically).
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Do we invest in infrastructure like roads and regional rail (a la Murray, Silbert) and hope the promise of people coming to an area spurs developers to build housing on spec that’s cheap and accessible to transport?
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These are all the age-old questions that will not get resolved unless and until we have someone in the Corner Office willing to take the next step.
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I’ll give Romney credit: he created the Office of Commonwelath Development and appointed a leader in Doug Foy. But then he gutted so many other aspects of Foy’s domain (mostly environmental) that Foy couldn’t reasonably advocate for smart growth when the environmental protections weren’t there to ensure it was going to be done well.
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You put a Democrat in the Corner Office and appoint a Secretary of OCD who has our principles in mind (Foy kinda did, but not enough – too old school) and who can think about the future, we could get something done.
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But I think it all comes back to whether localities will be willing to relinquish some local control over planning – something that will only occur if there are some municipalities willing to take a leap of faith.
…on several occasions, talk about relaxing the permitting process to some sane level to allow for more new housing stock. Also, proper density wouldn’t be a bad idea…we can’t all own .08 acres of land, after all. There isn’t enough in the area where people want to live. Good development of high-density mixed in with single-family houses would not only be good for prices, it’d be fun for those of us who like to live with lots of people and who who don’t.
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We have to talk about mixed-zoning affordable housing. Putting all the poor in one neighborhood isn’t good, but mixing the housing makes for diverse and exciting neoghborhoods where all the schools are receiving a good mix of traditionally-well-performing middle and upper class kids and lower-income and immigrant children. That’s the best way to give everyone a fair start and a safe neighborhood.
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Then, you don’t have the dilemma we have in Lowell where you are pushing out lower income people (“undesirables” to some people) in favor of rich high-imcome families by making housing prices out of reach. You can accomodate both with smart growth and good revitalization plans.
we can’t all own .08 acres of land, after all
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Sure we can! In fact, I just cleared out the back .04, so there’s plenty of room for everyone.
with 40R, Smart Growth, and the like is that it only focuses upon building housing in realitively urbanized “transportion nodes”. That’s part of the solution, but we need to find ways to encourage development of small single-family homes on small lots (the classic “starter home” for young families).
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I agree that the only way to really encourage this development is to have some sort of strong regional/state based planning that can override local control (like 40B, but stronger). 2+ acre lot sizes are ridiculous, and the whole point of them is to exclude new residents. Further, there is no question that environmental standards in development are hugely important — but I can guarantee you that towns aren’t worried about the environmental impacts when they adopt (for example) wetlands protection that is 10 times stricter than the state standards. It is because they want to stop development and keep people out.
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What we need is balance between open space concerns, environmental protection, and building affordable housing for people. What we don’t need is municipalities using regulations as mere pretext for creating ever more elite communities.
If you would like more information on the event at the Fed today, please visit:
http://www.bos.frb.org/economic/neppc/conferences/2006/housing/index.htm
or
http://www.ksg.harvard.edu/rappaport/events/fedhousing.htm
All the research papers and presentations are available on both sites.
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By the way, there was a third paper presented that Charley didn’t mention. It was a new study by Alicia Sasser and others of the Boston Fed’s New England Public Policy Center (a co-sponsor of the event, and my employer), covering the issue of housing affordability from a region-wide perspective. One key finding from our study is that affordable housing isn’t just a Boston problem any more; all the region’s large metro areas and many of its states have affordability problems of one kind or another.
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Carrie Conaway
Deputy Director, New England Public Policy Center
(and college friend of Charley’s)
Thanks for the clarification, Carrie. I was scribbling notes so fast (“liveblogging” on paper, as is my habit), I think I missed that there was, in fact, another report discussed. There you have it.
Hoss’s earlier post about the electoral dynamics of the issue really spotlighted the problem. Statewide candidates can and should talk about our population loss and lack of affordable housing, but in local races, those issues are not usually the ones that come up.
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What is the best solution? Perhaps one could form a political coalition of older residents of suburban communities and younger college or post-college age residents who cannot afford to live in the community in which they grew up. I mention the older residents because in a lot of suburban communities like Concord (my hometown) there are many older residents who would like to stay in their hometown but cannot because of property taxes, which are tied to home prices. A statewide push to limit some of the suburban zoning excesses combined with an effort to shift more of the school funding burden onto the state rather than local property taxes could garner substantial support from this constituency.
40S, just recently passed by the legislature, is an attempt to address the school costs of allowing development.
Charley and others,
I’m relatively new to this blog, but I’m very impressed with the tenor of the discussion, especially your take(s) on these two housing reports. I wonder if housing costs in Boston might also be driven by high transportation costs?
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On Wednesday I attended another report release from the Urban Land Institute and Northeastern’s CURP on Land Use and Transportation – instead of using housing to explain population loss, it looks at how transportation impacts housing costs. This report concludes that differences in housing prices in Greater Boston may be more even throughout the region than we think, if we include transportation costs. Stephanie Pollack (author) finds evidence of a housing-transport tradeoff in Boston, and calls for redefining “affordable” to include transport costs. I think she’s right on – I mean, you’re really buying both a house (yard, bedrooms, etc) and the accessibilityof its location when you buy. The executive summary might inform this debate pretty well.
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For my money, the candidate who seems to show the most promise of understanding as complex an issue as this in Deval Patrick.
It’s so hard to increase supply. I’m in the housing industry, and I have to LOL whenever I read the typical BMG cure for all our state’s economic woes: “create more housing.” It’s so naive.
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I can’t tell you how hard this is. No government sponsored program could possibly be large enough to backfill a decade of past housing underproduction. Only the private sector can do that. Unless you implement a Soviet-style housing program (don’t get any ideas.)
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We have too many regulations on the books at this point to allow the private sector to build anywhere fast enough to meet demand. And I think it’ll be impossible to repeal or even reform in any meaningful way the volumes of housing-killing legislation in existing.
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For example: Chpt 91. Take a read…seems sort of innocuous. Until the MA DEP gets a hold of it and spends years “interpreting” its provision. This one law, by itself, wouldn’t mean very much. But over the years, dozens of these laws have been passed, and it makes development of new homes very expensive.
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I could write a book on all the different regulations, at the state and local level, each of which adds $500, $1,000 or $5,000 to the cost of each new housing unit.
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Couple these endless regulations with very strong home rule (power to the towns), and no wonder we have the 3rd highest home prices in the US.
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Towns are to blame too. They donât want any more school-aged kids. So they make it very difficult to add new housing. They increase the size of lots; where one-acre used to be common, now you see 2 and 3 acre minimums. Plus open space requirements.
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You can blame it snobbery, keeping out the riff-raff, NIMBY, Prop 2.5, whatever. The damage has been done, and good luck trying to undo it. It’ll take a decade of committed effort, effort I certainly can’t imagine coming from Democrats and the social activists who have a loud voice on Beacon Hill.
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Chapter 40B (now watered down), 40R and 40S are helpful, but only at the margins. The towns have all the power, so no wonder why these laws are so weak (or in the case of 40B, weakened.)
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I sometimes ask what VA, or NC, or FL are doing right, and I get a fair number of comments claiming “we don’t want to be like them.”
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Fair enough. But try to project 10 or 20 years out and tell me what type of state we’re going to be. Itâs ugly.
when most people say “create more housing” they do it with a recognition that of course this means the private sector. Anyone who thinks it can be done soley through the state is either being facetious or is mistaken.
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It seems clear that the biggest problem is zoning regulations, with some other strict local regulations (wetlands, etc.) also playing a role in lack of development. Open space requirements aren’t a big problem, except in cases where there’s 2-acre zoning and the like (which, unfortuntely, is becoming more prevalent).
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Anyway, I think it all ultimately comes down to home rule powers. Unfortuntely, the conceit that individual municipalities come up with the best policies on this sort of stuff is woefully outdated, and is a relic of New England history. It’s time to update, IMO.
“I have to LOL whenever I read the typical BMG cure for all our state’s economic woes: “create more housing.” It’s so naive.”
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This is not my cure — it’s the researchers’ conclusions. It is hard; so how do we make it easier? I don’t think Glaeser — or I — have any illusions that it involves stepping on some toes (in his previous presentation, Glaeser jokingly referred to “blood in the streets of Lincoln”), and making tough decisions. But the situation now is really dangerous — as we agree.
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Shep, your comments would be great if you didn’t lard them with gratuitous condescension. Maybe you are the smartest guy in the room — do you have to remind us all the time?
By the way, according to Bluestone (I called his office), three communities last week announced that they’re going with 40R: Plymouth, North Reading and Norwood. Bluestone says there are some 30 that are considering it.
It’s a big mistake to blame Prop. 2-1/2 for our housing problem as some commenters have suggested. Property taxes are regressive and too much of a burden for many people already. Weakening or repealing Prop. 2-1/2 is not necessarily a “progressive” position. It’s vastly more important to increase state funding for local public education (i.e., no income tax rollback).
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The larger housing problem and solutions are painfully simple. Most towns think they’re acting in their best interest by minimizing new development — and in some respects they’re right — but when most towns act that way it has devastating consequences for Massachusetts as a whole. On average our towns require more than a football field of land for each new unit of housing built, which is substantially worse than states in the west and south, and we only produce about 2/3 of the housing our economy needs to stay afloat.
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You could take that power away from cities and towns or impose state development mandates — either one of which would trigger state/local warfare. Or you could do the smarter thing and establish clear expections of each community (minimum growth rates and densities), give them additional tools to achieve them, and override local zoning authority only where communities have failed to meet these basic standards. That approach embraces our quirky yankee home rule tradition rather than attacking it. Obviously, this pill would be much easier to swallow with increased local aid.
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It’s not realistic for candidates for governor to support radical changes like these but the rest of us need to stop the hand-wringing and start talking about this problem like it can and must and will be solved.
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Rolling back Proposition 2.5 is probably the wrong move. Let’s instead index state aid to demographics. All of it, education and general government. And let’s do it in a way that doesn’t encourage cities and towns to “cheat” by cherry-picking certain kinds of residents.
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For example, over-55 housing is a nice cheat. It brings in residents that use very few services, yet they pay property taxes and also count when doling out the lottery money. They support businesses and are generally beneficial to a community. It’s as close to a home run as you can get, especially if you can get the condo price to be over $300k.
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But what of the communities from which they come? A shift occurs, and more “expensive” residents concentrate in the communities vacated by the wealthy over-55 crowd. Cost shifting, and that’s encouraged under the current system. Kids and poor are bad. No kids and wealthy are good.
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So how about a law that equalizes the “cost” of a resident with state aid? A wealthy two-doctor household might get no state aid diverted to a town. A single mother with three kids might get a lot. Fund it to the point where it is no less beneficial to allow housing for one group over another, even in the eyes of the public. The goal would be that when someone says “I want to build a new development of $100k houses on 1/4 acre lots”, the residents say “great — we like this because it means more money to fund our services”
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Sure, it’s government-spawned artificial conditions, but so are levy limits and even the concept of zoning.
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I’m not advocating repealing Proposition 2.5, but I still think it’s responsible for the people in this state treating residents as only “expenses”, assigning values to different types, and then only allowing development to cater to certain groups.