Like San Francisco, Boston is a popular, job-rich coastal city where consistent population growth and lagging housing supply might squeeze homeowners across the income spectrum out of the market for many years to come. Zillow puts Boston 12th on its list of big cities with a housing crisis.
With an 11 percent population increase in Boston from 2010 to 2017 (compared with a 5 percent increase for the US population as a whole), builders have struggled to keep up with demand, which has caused housing prices to rise. The Boston Home Price Index increased 118 percent between 2000 and 2018, compared with a 95 percent increase nationally. It now takes 5.2 years of income to buy the median-priced home in Boston.
But that demand has not been evenly distributed. The city center has surged in popularity, leaving prices to lag in historically popular suburbs. Price is not the only problem. The lagging housing supply means that even well-off Boston renters can’t find a home to buy. And segregation remains an issue as the racially uneven housing recovery persists. Three charts illustrate the challenges in Boston’s housing market:
$1 million is the new $500,000
Thanks to Boston’s continued strength as a job hub and the city’s failure to build new single- or multifamily homes quickly enough to meet demand, the price of single-family homes has increased significantly. Ten years ago, the bulk of the homes cost less than $500,000, with most homes well below that price. As of 2017, most homes cost between $500,000 and $1 million, and more and more are inching closer to the $1 million mark.
Between 2007 and 2017, the $1 million home has become more common in Boston, and the $2 million home has become the next frontier. Does this mean we’re looking at a housing bubble? Compared with 36 other large US metropolitan areas, Boston is in the middle of the pack, sitting 20th out of the 25 cities at the top of our housing bubble watch list (which measures appreciation and affordability).
City center prices are outpacing suburbs
Between 2007 and 2017, home prices in the city-center areas of Boston, Cambridge, and Somerville rose from between 61 and 89 percent. In the communities on the Boston side of Massachusetts Route 128, the increase was more modest: between 45 and 59 percent. For the communities in the farther-out Interstate 495 corridor, prices have either fallen or increased by much less. The uneven distribution increases the price pressure in the city center and nearby suburbs.
Even the wealthiest renters face supply challenges
According to our Housing Affordability for Renters Index, one in five local renters can still afford to buy a home in Boston. That’s lower than the share in Phoenix and Atlanta but better than Houston, Los Angeles, New York City, and San Diego. Although Boston’s cost is high, the supply problem is what stands in the way of homeownership for these renters.
As demand has continued to shift to the city center, affordability and lack of housing supply continue to challenge homeowners in Boston. Policymakers should consider increasing supply and implementing policies that encourage a more equal recovery and allow for more diverse and integrated communities.