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Luxury housing booms; middle class struggles

Housing analysts say current strategy not working

Karen Morales
Luxury housing booms; middle class struggles
The increase in luxury apartment buildings in areas such as the Seaport District has done little to alleviate pressure on the city’s rental market.

Low and moderate-income residents of Boston have been dealing with the impact of skyrocketing rents and home prices over the past several years, but the issue isn’t just citywide; the combination of urbanization, economic inequality, speculative investment and market forces have contributed to a nationwide housing crisis.

Tim Reardon, director of data services for the Metropolitan Area Planning Council, has also observed the issue through a wider lens. “It’s not just a housing issue, but also an economic issue,” he said. Elements such as wage polarization, a decline of middle income jobs and the nature of global commerce have played their roles, said Reardon.

In the largest 150 U.S. cities, production of apartment buildings jumped by 46 percent between 2016 and 2017, according to RealPage, an apartment management software and data collection company. High-end luxury units accounted for more than 75 percent of those units, a dynamic that has increased the rent burden on the middle class.

In Boston, the picture seems similar. Half of Boston-area tenants pay more than 30 percent of their income on rent, according to a 2016 analysis by the research site Apartment List. Currently, there are about 25,000 new units in the development pipeline, meaning units that have not yet been permitted or broken ground but have been identified by the city as future developments. Out of that number, there are just 1,311 non-elderly low-income units designated to start construction, or which have already started construction, in 2018.

With national trends showing increased rent burdens on the middle class, the lack of affordability in the city’s housing market may seem like an uncontrollable issue, but city officials and local housing advocates say they are determined to try to mitigate the detrimental effects through policy and preservation strategies.

For example, one piece of the housing crisis puzzle is the popularity of short-term rental units through online platforms such as Airbnb that are intended for homeowners and tenants to rent out their spare rooms or living spaces by charging visitors and tourists a nightly fee. Investors however, have been buying whole buildings and units for the sole purpose of using them in this way to increase their profits.

Karen Chen, executive director of the Chinese Progressive Association, told the Banner that the development of luxury condos and apartments in Chinatown has driven up rents and land values and has made it virtually impossible to preserve or expand affordable housing.

Even more troubling, the proliferation of Airbnb and other short-term rental platforms has added further pressure to the market, placing the value of row houses in Chinatown out of reach.

Chen said, “Modest-income people can’t compete with investors who are counting on income from short-term rentals.”

“Everything is happening so fast, and we’re not developing enough affordable housing,” she commented. “With the kind of pressures we’re facing in Chinatown, if we don’t have policies protecting the existing affordable housing stock it will affect the whole city.”

City Councilor Lydia Edwards, who ran on a campaign platform against speculation in the housing market, has called for the city to further examine not only Airbnb units, but also foreign investments and home flipping. “What the speculative market does is take units away from residents,” she said in a phone conversation with the Banner. “We need to be protecting our housing stock, including those where people are currently living.”

Edwards said that she would like the city to reexamine its current balancing provisions such as the Inclusionary Development Policy. “Our problem is, we’re not setting, I think, high enough standards — is 13 percent high enough for required affordable units?” she said, referring to the city’s current requirements for developers.

In January, Mayor Martin Walsh filed a city ordinance to regulate short-term rental units in Boston by levying fees and requiring registration. The proposed regulations aim to reduce incentives for short-term rental units owned by investors but allows for the continuation of current residents to use short-term rentals for side income.

According to Chris English, policy analyst and project manager for special initiatives in Mayor’s Office of Intergovernmental Relations, there are about 4,500 short-term rental units in Boston visible on online platforms, and about 2,000 of them are owned by investors, as opposed to residents.

In light of all this, Sheila Dillon, the city’s chief of housing and director of the Department of Neighborhood Development, said that the city’s main plan, Boston Housing 2030, is to “work really hard on production and preserving housing that are at risk or have deed restrictions expiring soon.”

To combat the housing market’s speculation, Dillon said that the city works to “give capital to non-profits to buy existing tenant-occupied buildings to take them out of the speculative market, and preserve their affordability.”

As part of Walsh’s goal to add 53,000 housing units by 2030 to keep up with the city’s exploding population, not only are newly-constructed units counted towards the goal, but also units that have been preserved and saved from expiring deed restrictions.

Reexamining AMI

Grace Holley, a community planning consultant and affordable housing advocate in Boston, doesn’t think the city is doing enough to maintain housing affordability for residents.

“I do not think building majority high-end housing while most low-and moderate-income renters have no protections against drastic rent increases will result in the city being more affordable to all,” she said. “We need to limit speculation, exacerbated by short-term rentals and student sublets, require more affordability in our developments, and think of creative ways to fund more affordable projects and consider protections for renters if we want our long-term residents to be able to stay in Boston.”

Holley also believes there is a fundamental issue with the city’s calculation of affordability, which uses Area Median Income as a benchmark.

“I think using AMI to define income restrictions and rent prices in affordable units is a flawed methodology since AMI is based on the median income of over 100 towns stretching into New Hampshire and is much higher than the true median income of Bostonians,” she said.

According to Reardon, the MAPC found that in 2016, the median income for Boston households was $58,500 per year. Broken down further, households with two individuals related by either blood or marriage had a median income of $65,200 per year. For a married couple who may or may not have kids, that median income increased to $104,00 per year.

The city uses a slightly different AMI. According to Dillon, the city defines low-income as less than 60 percent of the AMI, or less than 60 percent of $55,000, and places a moderate-income household between $50,000 to $125,000.

The dizzying and sometimes conflicting definitions of “affordable” may be another contributing factor to Boston’s housing crisis.

Other barriers

Other pieces of the puzzle include the high overhead expenses for constructing new housing developments, regardless of whether the units will be designated affordable or not. The costs of labor, land and materials are high across the board.

One possible solution to this, according to Reardon, may be to construct buildings of higher density, so that “the efficiencies in construction could cut costs in half.”

Another barrier for developers in creating affordable units is the permitting process, which Reardon described as “arcane and outdated.” The city could be more proactive in creating a more “predictable zoning process,” he said.

But once again, Boston’s housing problems are not an isolated issue. “No matter how many more new units Boston builds, it’s not going to fix the problem unless surrounding communities do their share too,” Reardon said.

Yawu Miller contributed to this report.

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