From Mark Pothier in the Boston Globe.
In Plymouth, the median sale price of a single-family home at the end of 2017 was about 4 percent below its pre-recession peak in 2005. Towns such as Hyannis and Southbridge sat deeper in the hole — still more than 15 percent down. Compare that with Cambridge, where the median sale price rose by 96 percent between 2005 and 2017. In parts of Boston, prices have outright doubled since 2005. Never has home-value disparity in Eastern Massachusetts been so extreme.
I have a hypothesis about the cause of house price divergence in the area. Boston has peculiarly bad transportation woes. The “subway” runs above ground on some routes, which makes it quite slow. Parking regulations and parking shortages in Cambridge and Brookline make car transportation difficult, especially for commuters. The road system is terrible. Construction on major streets creates major bottlenecks. A major economic activity is remodeling old houses, and the streets are choked with contractors’ trucks.
These transportation problems make commuting a nightmare in Boston. That in turn puts a premium on close-in housing and lowers the value of housing in suburbs that are nearby in terms of mileage but remote for commuting purposes. I think once the Baby Boomers hit their 80s and no longer have the ability/desire to take advantage of urban amenities, there may be enough of an exodus from the expensive suburbs to stop the price spiral there.
Consistent with your hypothesis, Southbridge is more than 60 miles from Boston. Plymouth is about 40 but a good part of that is the Southeast Expressway, a terrible commuting road. Hyannis is 30 miles beyond Plymouth, “over the bridge” on Cape Cod.
Heh, two years ago Larry summers wrote a column for the Boston Globe, “A lesson on infrastructure from the Anderson Bridge fiasco,” and a shorter Op-Ed in the Washington Post, “Why Americans don’t trust government,” after suffering from Boston–area commuting woes. “Faith in government’s ability to do big things depends on its success in executing on routine responsibilities.” (Compare to Brooks’ recent line: “Trump is really good at destroying systems people have lost faith in.”)
Maybe there’s a Minsky-cycle here too. One starts out with a high-faith-in-the-system, low-burden, “actually get things done quick and cheap (but dirty)” condition. Is China at this stage? Gradually, there is a kind of regulatory Kuznets curve at work, and little burdens get tacked on one by one. An environment restriction here, a historical preservation condition there. Eventually, everything takes forever and costs a fortune in American Cost Disease. And people lose faith and get pissed off and even radicalized when they realize there is nothing they can do short of radical measures. And then they look for those radical reset alternatives.
Right now Libertarians and some Progressives are on a pro-density “just build more housing” kick, and tend to dismiss and disparage the motives of local residents who try hard to stop it. What I’ve tried to point out is that a legitimate reason for protest is the fact that our system government – especially in big winner city centers – is simply no longer capable of “preserving infrastructural adequacy” let alone at anything approaching reasonable costs and timescales. One could try to say that all new developments should bear the burden of paying for the additional infrastructure, but at current timescales and prices, that would make buidling just as hard, lengthy, and expensive, and so wouldn’t change or solve anything. If one accepts that as a given, infrastructure turns into a fixed, scarce resource, and all matters of incresed density turn into a tragedy of the commons with congestion externalities. People think, “If this happens, congestion is going to get awful, which fundamentally changes the character of this property. And what happens next? What will the government do to ‘fix’ the issue? What can I possibly to do to petition for improvement? Nothing, obviously. I’d just be screwed.”
Fix that first, and then people won’t be as allergically resistant to growth. But no one seems to accept it as a stumbling block to advocacy, and since fixing that is seen as simply impossible, they just skip over the issue as if it’s not a fundamental and crucial problem in our society.
The important inference from the observation of increasingly strong inverse relationship between commuting times and housing prices is that it shows the increasing geographic centralization of high-paid labor activity, who need to be physically close to each other. If a task can be performed by someone who doesn’t have to be physically close to you, to the extent feasible and legal, it can and will be performed in a much cheaper place far away. So affluent people are competing to be as close to the center of activity as possible, while still enjoying ‘higher quality neighborhoods’, and to waste as little time and frustration as possible getting to and fro.
Again, it’s essential to keep in mind that this is an absolutely global phenomenon happening in every big winner city everywhere, and attributing it to what amounts to quirks of US, state, or even local laws and conditions is missing the big picture: the fundamental technological and economic changes driving the train.
I live in the Boston area. I’m not sure the towns listed are particularly useful examples of what is going on.
I don’t think our transportation issues are any worse than other northeast metros. The center city is small. Jobs are more disbursed here throughout the metro area, so we don’t have everyone heading into the city.
This is a very mature market, and the towns have all grown out to fill their existing infrastructure. There isn’t any easy development any more. Growth would mean major investments in almost everything: schools, sewer systems, landfills, police and fire, etc… Significant growth at the margins just won’t pay off for anyone.
I can’t claim to know the circumstances in the other closed access cities, but here, its not really all that complicated. Its a mature place and it would be very expensive to retrofit this place for major growth.
There is nothing special about Boston here. It’s quite simple, and it’s universal across the country. After mid-2008, we effectively made it illegal for two-thirds of the country to get a mortgage. The results are extreme. There is nothing subtle to debate.
For instance, in 2008, Fannie Mae guaranteed $1.5 trillion of mortgages that had been originated to borrowers with FICO scores under 740 and $1.2 trillion to borrowers over 740. This was actually a relative reduction in sub-740 FICOs compared to 2000, because the housing bubble was not associated with increasing mortgages to households with low incomes or FICO scores. But, by 2015, Fannie’s book of business was down to $1.1 trillion with FICO scores under 740 and up to $1.7 trillion above 740.
You can see the results in practically every city in the country. At the end of 2008, when prices had already dropped by quite a bit, prices across the market were relatively stable. In other words, if high end homes in a city were 50% higher than they had been pre-“bubble” – say 1998, then low end homes on average were also about 50% higher. This is universal. Boston, Atlanta – it doesn’t matter.
But, after late 2008, there is a divergence, and in every city. It doesn’t matter if prices were 50% above 1998 or lower than they had been in 1998. Low end prices dropped 20% to 40% compared to high end prices. Public policy has been extremely pro-cyclical. It killed working class balance sheets. It continues today.
It was unnecessary. Mark Pothier happens to have noticed the damage in Boston. It has nothing to do with what happened during the boom. It has nothing to do with uncoerced choices. It certainly has nothing to do with public transportation in Boston.
Ironically, the credit bust has been used, speciously, as evidence of the bubble. The argument is that in cities with elastic supply, the bubble led to oversupply instead of high prices, and so the result was a market collapse. The problem with that theory is that there was never an oversupply anywhere. And, it becomes more clear with each passing year as prices in those neighborhoods remain too low, inventory is low, new housing starts are non-existent, and rents continue to rise to uncomfortable levels. This is because we sucked the money out of those markets, so that much of the market is grandfathered into homes they would not qualify to buy today. They can’t sell. (Just like the author of the article.) Builders can’t fund new lots because the entry level market is 20-40% underpriced. So, disastrously, the extreme tightening of credit caused a bust which has been used to confirm the thesis that loose credit was the problem. And, we’ve been whistling past the graveyard this whole time.
Disagree with Kevin on this one…he has cause/effect backwards. There is virtually unlimited capital available right now. And if the banks can’t perform certain business, the non-bank market has rushed in (consider the amount of corporate debt that is now non-bank). Truth is, the US lower/middle class is not a good credit as their earnings prospects over the next few decades are dismal. Wages have massively lagged this cycle and there is apparently no end in sight. The private lending market has stayed away for good reason. And a few that have ventured in (e.g., Carlysle) the private housing market have already backed out.
Funny how those households are making enough money that they keep bidding up rents.
Rents per unit are being bid up, but the average sq/ft per person can go down.
Are you saying low end prices dropped 20% to 40% compared to high end prices in Boston? My understanding is that there is very little inventory of those homes available and the bidding on the low end of the market is quite fierce here.
It is. Yet, as the article confirms, prices are low relative to the rest of the metro area. The same thing is happening in every city.