Policies cost middle-class housing

Duane Jackson (left), Leslie Bos and Michael Spotts spoke on housing costs at The Boston Foundation.

Demand for middle class housing in Boston is through the roof, but developers will never be able to meet it unless policies change, researchers say.

Two major factors in play are sky-high costs to build in Greater Boston and strong community and zoning opposition to multi-family developments, according to the Greater Boston Housing Report Card 2015 released last week by The Boston Foundation.

Creating new housing is such an expensive proposition that most developers focus exclusively on luxury units unless subsidies or zoning requirements push them to construct low-income affordable housing.

The vast majority of the city’s subsidies help underwrite units for low-income earners, leaving middle class housing an unattractive prospect for developers. With nowhere to live, they are set to be squeezed out, leaving Greater Boston a region of the very rich and the very poor.

High price to build

To afford the median monthly rent in Boston — $2,497 — families need to bring in $100,000 annually, or $50 per hour, the report found.

For most families, this is completely out of reach. Boston’s median household income was $53,601 between 2009-2013, according to the United States Census Bureau.

In new developments, rent would be even higher than the city median.

To cover mortgage and principal costs, interest, taxes and operating costs, a new 1,600 square-foot unit in a small-development would have to rent for $3,215 according to the report’s authors, a team from the Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern University.

For each square foot of land a company develops, it pays about $8 in site preparation, $17 in financing fees, $19 in developer fees and $29 in soft costs, such as legal fees. The largest portions go to land — $41 per square foot — and $159 to construction costs, such as labor and materials, which make up about 58 percent of any development.

Due to economies of scale, construction of a construction of a larger, multifamily building would reduce some of the per-unit costs.

Little land to spare

Land costs in the city are about 14 percent higher than they are in the suburbs.

The reason? There is only so much land to go around.

“Boston is 48 square miles,” reminded Sheila Dillon, the city’s chief of Housing and Neighborhood Development, speaking at The Greater Boston Housing Report Card forum held at The Boston Foundation last Friday.

This necessitates a careful consideration of how what little vacant space there is gets used.

The GBHRC authors call for an examination of ways to encourage businesses, nonprofits, housing authorities and communities to donate land for affordable and mixed-income housing.

Suburban role

The solution to Boston’s housing also needs to come from outside the city.

“We’re building a lot but we really need a regional approach,” said Dillon. She said developing housing at transit hubs in the surrounding area is an important strategy.

Boston also struggles under the combined effects of natural population growth and an influx of young professionals drawn to its strong economy.

Making more multi-family housing available in the suburbs would stem some of that flow, said Barry Bluestone, founding director of the Dukakis Center.

However, to preserve the character of the neighborhoods, many suburbs seek to block the creation of buildings that would serve more than one family, the report states. Most use zoning to prohibit new multifamily housing.

“Highly restrictive zoning, present in virtually every one of the state’s 351 municipalities, creates an artificially high barrier to development … in order to reduce the perceived impact on the neighborhoods,” the authors write.

The result is that residents of the suburbs, such as elders looking to downsize, or youth looking for their own homes, are squeezed out. Those who might otherwise stay take to the city to seek multi-unit housing.

“Multifamily zoning: that’s issue number one to take pressure off this market,” said Duane Jackson, managing member of real estate and investment company, Alinea Capital Partners, LLC. “We need to make it clear that every city and town has a responsibility to make multifamily housing.”

Economy of scale

High-density buildings serve more and, thanks to economies of scale, reduce prices.

For a development with 151 or more units, the cost per square foot is $164. If the development has fewer than 30 units, the cost per square foot rises to $263.

“The cost of development has tremendous economies of scale,” Bluestone said.

Communities in the city also frequently oppose big high-density buildings.

“We need to persuade communities if we want to drive costs down,” he added.

The report recommends stronger zoning reform, a push for multi-family and high-density zoning and development of larger and more efficient housing projects.

Middle class

New housing is expected to stay luxury if no measures are put in place to regulate prices.

Leslie Bos, real estate director for Jamaica Plain Neighborhood Development Corporation, said new 85- to 300-unit housing projects in the neighborhood came with $2,600-$5,000 rents. While these developments help ameliorate housing shortages in the overall region, they have not brought housing to low-income residents in the neighborhood.

“From the perspective of production and how important that is, that’s great, but from the neighborhood perspective …that hasn’t translated into accessibility and affordability for the most vulnerable of our community,” she said.

However, if enough new units are put on the market — thanks to freeing up land and creating high-density buildings — demand may drop, bringing down prices on pre-existing stock or keeping them from rising further.

“New development is not the answer for keeping a lid on affordability,” said Bill McLaughlin, executive vice president of development for real estate investment trust Avalon Bay Communities, Inc. “It’s overall production — affordable and market rate — that helps relieve pressure on the market. What it helps is the triple-decker down the street or the 25-year-old project three streets away, where it keeps a lid on the prices.”

Further solutions still need to be found, such as methods for increasing land and funds put toward middle-income affordable housing. But as the report highlights, high costs to build and low-density construction models are key areas to start.