We need more housing

New construction would mean jobs but also lower housing costs

I participated yesterday in a forum on the connection between housing and the economy held by the Home Builders Association of Massachusetts. The event marked the release of a report demonstrating the large net revenues residential construction provides for state and local governments.

This is a critical issue because it’s tied so tightly to why our economy has stalled. High housing costs are a huge anchor on the Bay State economy, and housing is expensive precisely because communities think allowing new development costs them too much money.

Job bills currently before the Legislature focus mostly on casinos and tax breaks. These approaches are hardly the way to put the state back on the path to strong sustainable growth. Above all, we need to focus on producing more housing.

Experts on the national economy have been saying all along that we won’t get real growth until housing markets recover. That’s because construction is such a large sector and it’s much more localized than other industries today (i.e., home builders purchase many products and services from local suppliers and relatively little from abroad).

According to Elliot Eisenberg, senior economist for the Home Builders, the falloff in residential construction is responsible for a quarter of the jobs lost nationally.

The construction sector is important to Massachusetts as well. But for us the problem is compounded because we also need to get building again to bring down our high housing costs.

A 2008 report issued by the Massachusetts Housing Partnership made this crystal clear. Titled “Recipe for Growth,” the report showed that more housing built today means more jobs tomorrow. No major metro area added jobs building as little housing as greater Boston.

The reason we add so little housing is because of strong home rule. Communities are convinced that adding housing for new residents will lead to higher property tax bills for current residents. As a report a few years back from the Pioneer Institute demonstrated, towns use zoning and other regulations to restrict growth. By only allowing homes for the elderly and the very wealthy, we’ve successfully encouraged young professionals with children, the very people who are vital to growing businesses, to look elsewhere.

Even now, when we’re desperate for job growth, we’re not thinking about this problem. With property tax collections falling and the state cutting local aid, towns are more fearful than ever about taking on the costs associated with new residents.

The NHAB report argues that this fear is misguided. According to their analysis, state and local governments actually benefit from new home construction. This could very well be true in the aggregate. But the question is do individual communities really see these new revenues?

According to a 2005 report issued by the Center for Urban and Regional Policy at Northeastern University, the 113 “foundation communities” that receive significant Chapter 70 school aid to compensate for limited fiscal capacity fully realize the costs of new students. However, for the remaining 238 communities, new homes would need to assess at greater than $550,000 in order for communities to recover their school costs. (Incidentally, NHAB estimated the average value of a new home at $509,000).

The Pioneer Institute has suggested we look at how we compensate these communities so that they are able to share in the benefits of growth. Chapters 40R and 40S were one attempt to do this, but they didn’t go nearly far enough; communities remain dead set against new housing.

That’s why the MMA is fighting the one piece of housing stimulus currently before the Legislature. The so-called permit extension act would give builders three more years to complete projects that stalled because they couldn’t get financing in place. Almost everyone else agrees that this is a common-sense way to get our economy moving again.

We cannot afford to keep stalling on solutions to this intractable problem. As Ed Glaeser, the distinguished Harvard economist who’s been sounding the alarm for years notes, our competitors are more hungry than ever for the businesses we successfully spawn.

Last week he wrote an opinion column describing efforts by Atlanta officials to steal away our growing companies. He noted that over the last five years metro Atlanta has permitted 210,000 housing units, while the Boston area has allowed fewer than 56,000. Median home prices in Atlanta are $110,000 versus $322,000 here.

Meet the Author

Ben Forman

Research Director, MassINC

About Ben Forman

Benjamin Forman is MassINC’s research director. He coordinates the development of the organization’s research agenda and oversees production of research reports. Ben has authored a number of MassINC publications and he speaks frequently to organizations and media across Massachusetts.

About Ben Forman

Benjamin Forman is MassINC’s research director. He coordinates the development of the organization’s research agenda and oversees production of research reports. Ben has authored a number of MassINC publications and he speaks frequently to organizations and media across Massachusetts.

The headline in yesterday’s Globe featured Fidelity reducing its Massachusetts workforce by 4,000 jobs. They didn’t go to Atlanta, but they may have gone to Raleigh-Durham. We can expect to see more jobs leave the state until we get serious about increasing housing production.

Ben Forman is Research Director of MassINC