Droop in home sales infects even the subsidized market

As prices fall, realm of 'affordable' swells

Resale restrictions on subsidized houses like this one on Richfield Street in Dorchester make them less desirable compared with open-market units. (Dominic Chavez/Globe Staff)

In a state where demand for affordable housing is widely considered unquenchable, homes built with government subsidies and priced for sale to low-income families are increasingly sitting unsold.

Falling home prices have dropped other options to within reach of some families. The subsidized homes cannot be resold for a profit, and these buyers appear to be choosing homes with no resale restrictions instead.

The City of Boston conducted a lottery last summer for 18 homes in Dorchester, expecting a huge demand. Only 10 homes sold. The city and local nonprofits are now spending money marketing the rest.

In Lowell, three units in a subsidized condominium project sat unsold for almost a year before a community development agency decided to convert them to short-term rental housing for needy families.

A Worcester nonprofit slashed prices this summer on six condos, then hired a local real estate firm to help sell the units, which have now been on the market al most 20 months.

"In the city of Worcester, affordable housing is no longer a bargain," said Marti Orne of Achieva Realty. "People say, 'Look, I can buy something without deed restrictions.' "

Most of the unsold homes are in lower-income urban neighborhoods. In suburban communities, even the reduced demand for affordable housing still outstrips the available supply, and subsidized units continue to sell quickly.

The weak demand may prompt changes in the state's home-ownership programs. For two decades, those programs have focused on preserving affordability by imposing tight restrictions on resale prices. But in a growing number of neighborhoods, concern about price appreciation is yielding to concern about neighborhood deterioration. Officials are talking about loosening resale restrictions to better attract new buyers to troubled neighborhoods.

"For years the for-sale market was so strong and so tight that as long as you developed a unit that was affordable, it would just sell," said Tina Brooks, undersecretary of housing for Governor Deval Patrick. "In certain areas, what we need now is more of a 1980s-style traditional revitalization program."

The Boston area has some of the nation's highest housing prices, the result of a boom that began in the 1980s. About a third of area families spend a larger share of income on housing than the federal government regards as affordable. Building and maintaining low-cost housing has been a longstanding priority for Massachusetts and local governments.

Between 2002 and 2006, more than 10,000 units of price-controlled housing were developed in the Boston area, according to the Center for Urban and Regional Policy at Northeastern University. Most of the units were apartments, but about 3,400 units were sold to first-time homebuyers.

The home prices are fixed to be affordable for a family making slightly less than the area median income, with adjustments for family size. In Boston, a family of four making up to $92,500 can purchase one of the available Dorchester homes for $245,000. Resale prices are adjusted only for inflation. After 50 years, the home can be sold on the open market.

During the boom, housing lotteries sometimes drew 100 applications for each available unit. Now, a growing number are sold to the first interested buyer, according to industry participants.

Housing advocates say people are scared by the spike in foreclosures. "People are not willing to pull the trigger," said Tom Callahan of the Massachusetts Affordable Housing Alliance. "There's more nervousness about, 'Is this going to go bad for me like it did for the person down the block?' "

Also, fewer people can qualify for mortgages because lenders have sharply tightened standards in response to rising defaults and foreclosures. "Three or four years ago, we went through three applicants to get someone who was qualified. Now in some cases we could go through 20," said Mark O'Hagan, whose company, MCO Housing Services, is paid by developers to sell affordable units.

But falling prices may be the largest factor. Worcester Community Housing Resources Inc. listed nine condominiums for sale in May 2006. Three sold before the market declined in earnest. This summer, the nonprofit slashed prices by up to 20 percent on the remaining units. A two-bedroom can be had for $114,900.

"In 2003, if you wanted to buy a condo" in that price range, "there were only about 18 on the market in Worcester, at any given time," said Adam Pasquale, who owns Achieva Realty. "Today there's 90 on the market."

The firm has shown the units to almost 70 buyers. One signed a contract.

Most of the unsold homes are in low-income neighborhoods where private development is scarce. Cities used affordable-housing programs to lure new residents to those neighborhoods, sparking revitalization. Now the flow of buyers has dried up, just as new residents are needed to counteract the negative impact of foreclosures and falling prices.

Some housing advocates want the government to ease resale restrictions on the units. That could attract more buyers, but if the strategy succeeded in sparking development, and prices rose, the units would not remain affordable to low-income buyers.

A bill passed by the state Senate would let the state loosen deed restrictions in targeted neighborhoods: The maximum income for buyers of subsidized homes would be raised to 135 percent of the local median from 110 percent, and the owner of a subsidized home could sell on the open market, for a profit, after 10 years.

"In certain neighborhoods, these restrictions are a barrier to people being interested in homes," said Senator Susan Tucker of Lawrence, the bill's author. "Two or three homeowners can turn a neighborhood around."

The idea has the support of state housing officials, but only for use in areas with entrenched economic problems, primarily cities outside the immediate Boston area such as Lowell, Fitchburg, and Springfield.

State and local officials are reluctant to consider similar measures in Boston. They say the city's economic health will continue to drive up real estate prices in the long term. Selling homes with fewer restrictions would grant a windfall to the first generation of owners - and leave the city with fewer affordable units.

For now, officials said, the city intends to stay the course.

"We're generally working in tougher neighborhoods, and as government, that's where we should be," said Bill Cotter, deputy director of Boston's Department of Neighborhood Development. "We're not exempt from the impacts of a real estate downturn or from the challenges of a neighborhood that has crime issues.

"So it will take more effort to sell these properties. But we will sell them."

Appelbaum can be reached at bappelbaum@globe.com.