Housing Prices in Boston– as simple as supply and demand?

by | | General real estate stories

I found a great blog the other day.  While it isn’t solely

focused on real estate, he does have a section devoted to it.  Last month the author was

writing about the Fenway, but in a wider sense, about construction in the city and supply and

demand, overall.  I have cut and pasted part of his post, along with a reader’s response, and

my response to that response, below.

Affordable

Housing Woes

“Steve Bailey details the troubles of the

Fenway Community Development Corporation in maintaining its own goals of affordable housing. It

seems that the Susan S. Bailis center on the edge of the South End is trying to convert affordable

units to market-rate, because the overestimation of market demand has led to a fiscal shortfall in

the project. This, Bailey argues, should give pause to the FCD’s recent obstruction of

Northeastern’s attempt to create more student housing in the

area.

…

This obstructionism is part and parcel with

a mentality that sees luxury high-rise construction as bad because average people can’t afford to

live there. The way I look at it, the more places well-to-do people have to live, the less likely

they’re going to be competing with places I might actually be looking at one day. This is not to

say that the market solves everything; it doesn’t. Nor does it mean that affordable housing

requirements in new construction are a bad thing. It simply points out that creation of new housing

is the thing above all else that’s going to ease the difficulty in the long run of average people

to afford their living space.”

Adam G’s

response:

In theory, you’re right. The problem is this is no longer a

rational market, where increased supply inevitably leads to reduced prices. Demand is down (as

indicated by stats showing houses are staying on the market longer) and yet prices continue to go

up.

When two-bedroom condos in rehabbed townhouse apartments in Roslindale

are going for $400,000, when WBZ runs ads for seminars on how to make money in real estate,

there’s something else going on beyond a shortage of units (and is there really one? Back in 1950,

Boston somehow managed to fit 800,000 people in the same basic space now occupied by barely

600,000). Can you say speculation?…

My

response:

I know this comment is coming a month after your original post,

but I just wanted to take issue with what adamg said. Actually, I don’t really know what he

said…something about 800,000 people in 1950 vs. 600,000 now. I’m not sure you can make that

comparison.

I don’t know how many housing units there were in 1950, nor do I know

how many there are now, so his comment that in 2005 we are fitting 600,000 people in the “same

basic space” as in 1950 might not be true.  The city has changed drastically, since

then.

For one reason, in 1950, two neighborhoods existed that are no longer there –

the “New York Streets” neighborhood (where the Boston Herald is, now) and, of course, the

West End (where Charles River Park is, now). That might mean lower number of housing units exist

today (a fair guess, seeing how dense the West End was and how sparsely populated is Charles River

Park).

For another, the majority(?) of housing in the South End, and probably the

Back Bay, too, were rentals and single-resident-occupancy (SRO) units, meaning there was a greater

density of people (and, in fact there are regulations now which lower the people per floor…what

is that called, FAR?). There is less housing available to people in those two

neighborhoods.

There hasn’t been much residential construction (to-own), in fact,

since the 1950s. I can’t think of many projects, at all, except those that started within the past

five years (Ritz, Grandview, Belvedere, Atelier…wait, is that it?). Housing units have gone from

single families, as originally constructed in the 1800s, to apartment buildings and/or SROs, to

condominiums (in the 1980’s) and now in some cases back to single

families.

Actually, the number of housing units in the city over time may be a very

important statistic in all of this. It warrants more research.

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