Long Islands Levittown (Associated Press/File 1948 Photo)
Smaller homes are nonstarters
Developers cite restrictive zoning for lack of affordably priced homes
Can the starter home be saved?
That little box of a house on a postage stamp of a lot, selling for $300,000 or less, has become the poster child for some of the biggest problems facing Massachusetts.
Unable to afford the third-most-expensive housing market in the nation, young people are moving away, costing Massachusetts the human capital needed for future economic growth. Intensely studied and hotly debated, the lack of moderately priced housing is finally being addressed in a variety of ways. Under new state programs and zoning changes in some communities, there is a lot more new housing coming over the next decade. But many of the new properties will still cost far more than what working class and young families can afford.
"I think in two years, we'll be able to look back and see a large breakthrough on some of the bigger discussion issues," said Andrew Gottlieb , chief of the Office for Commonwealth Development, the state agency that is pushing a variety of innovative programs and tools to resolve the housing crisis, such as providing funding and planning assistance to communities that allow large residential and mixed-use projects in their town centers.
One of the major points of contention is government regulation, particularly at the local level. Researchers and home builders blame municipalities for having zoning regulations, such as minimum lot sizes of an acre or more, and building requirements that drive up land costs and encourage McMansion-style homes on large lots that eat away at open space.
A study earlier this year by the Massachusetts Institute of Technology's Center for Real Estate concluded that new homes built in Greater Boston between 1998 and 2002 used an average of 1.3 acres per lot -- much more than homes elsewhere in the country. The ballooning house lots here, said Henry Pollakowski, director of the Center's Housing Affordability Initiative, are a result of more restrictive zoning rules adopted by communities since the 1980s.
"It's anti growth. It's a way of keeping other people out" of those towns, he said.
Home builders contend the local regulations drive up the cost of land in Massachusetts; a buildable lot in the Boston area goes for $300,000, they said, and most communities won't let them divide it into smaller parcels to build more, modest size homes.
"If a lot is worth in the low $300,000s, and the house costs $250,000 to build, you're already close to $600,000. At that point it's not worth it " to build a smaller home, said Paul Gallagher, co-owner of luxury-home builder J.P. Gallagher Construction & Development Co.
But if communities relax zoning and building rules to allow for smaller lots that accommodate smaller houses, or more housing units per lot, developers said they would eagerly respond by building lower-priced homes.
"We'd love to find a site where we could build duplexes, 1,800 square feet each, and put them on 10,000-square-foot lots," said Jeff Rhuda , business development manager for Symes Associates, a Beverly real estate developer . "You could sell that stuff all day long ."
Greater Boston has an immediate shortage of about 38,000 affordable housing units, which will grow to 50,000 by 2030, based on projections by the Metro Area Planning Council. Further, MAPC estimates that 85 percent of the new housing that will get built in growing suburbs will be "large expensive single-family homes on lots of 1 acre or more -- a type of housing that suits only a small segment of the region's population."
Harvard University economist Edward Glaeser tried to quantify the cost of local zoning rules in a recent study of the Massachusetts housing market. "Our estimates are that each new form of land-use regulation reduces the flow of permits by about 10 percent and brings an associated price increase of about 7 percent," he said.
Municipal officials counter that developers will always build housing that produces the greatest profits -- and those are the biggest, fanciest on the market.
"If communities reduce lot sizes, the developers would still come in and try to build the most expensive building they could on that lot size," said Geoff Beckwith , executive director of the Massachusetts Municipal Association. "It's the developers who are buying starter homes and razing them to build McMansions. What's the reason there? Profit."
Builders said they do make higher profits on large homes with expensive finishes. But some contend there is a way it would be in their financial interest to build smaller homes -- with lower profit margins -- should communities change zoning to allow it.
A key economic factor for builders, Rhuda said, "is, what is the most saleable in the shortest amount of time?" The answer, right now at least, is smaller homes. High-end homes are taking longer to sell now, meaning developers are paying hefty carrying costs on the unsold homes that will erode their profits, he said. Meanwhile, there is a huge market for smaller homes, Rhuda said, so there is less risk in building them.
"We wouldn't make an exorbitant amount of money, but we'd make a profit," Rhuda said.
Even with the current soft real estate market, the median home price statewide is still an expensive $341,000, and higher still in many Greater Boston suburbs: $493,000 in Arlington, around $380,000 in Braintree and Easton, $405,000 in North Reading, and $377,000 in Foxborough.
Meanwhile, with a median income of $85,000, a family of four in Massachusetts can afford to buy a home for around $250,000, said Aaron Gornstein , executive director of the Citizens' Housing and Planning Association, a non profit advocacy group.
"To be able to afford a single-family detached home in the suburbs is unrealistic for the vast majority of younger families," Gornstein said.
Municipal officials have their own proposals for solving the housing problem. One, Beckwith said, would be to allow more communities to impose "inclusionary zoning," which would require builders to set aside a certain number of units in their developments for affordably priced housing. But municipalities have been unable to convince the Legislature to authorize such powers.
At a more modest level, the 111 cities and towns that have adopted the Community Preservation Act, which allows communities to collect a property tax surcharge and spend it to build affordable housing or preserve open space, have added 871 affordable housing units since its inception in 2000.
And some suburban communities are rediscovering cluster zoning, in which housing construction is concentrated in one portion of the development parcel, in order to preserve open space elsewhere. Northbridge, where typical residential zoning is 20,000 or 30,000 square feet per house lot, also has special townhouse zoning that allows up to eight units per acre, on average, as long as at least 30 percent of the total area remains open space.
While the intent is to preserve open space, the result of such cluster zoning is often more modestly sized lower-priced housing.
Northbridge Selectman Joseph J. Montecalvo said communities such as his could fix their housing shortages if the state in turn relaxed some of its building rules, such as sewage and drainage requirements.
"We would have more controlled development in certain parts of town if we're not restricted in how we do those," said Montecalvo, who is also head of the statewide Selectmen's Association.
The state government, meanwhile, has adopted several programs to entice communities to allow high-density developments in town centers and along transit lines, so-called "smart growth." Seven communities, including Plymouth, where development has been booming, have adopted the state zoning incentives since they were enacted in 2004. So far, projects in those communities would create about 2,000 housing units -- a minimum 20 percent of which must be affordably priced, which is defined as monthly costs not to exceed 30 percent of eligible residents' income.
The state also offers communities additional funds if they adopt the zoning incentives, particularly to help cover the education costs of children who move into such developments.
More broadly, the Romney administration's emphasis on smart growth has prompted an explosion in "transit-oriented developments," housing and mixed-used projects near train and bus lines. Some 85 are in various stages of planning or completion, and if all are built they would add about 25,000 units of housing.
Many may not get built, particularly with real estate sales slow now, especially in certain markets for condominiums. Moreover, many of the units in those developments start off in the $400,000 and $500,000 range, well beyond affordability thresholds.
Nonetheless, the myriad projects demonstrate "we're getting more diversity of housing starts," said Gottlieb, the state development official. "When you have progress on local zoning [issues], it shows the stuff can work."
Andrew Caffrey can be reached at email@example.com.