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How many rich people can Boston support?
By adamg on Thu, 05/26/2016 - 8:03am
David Bates provides a snapshot of our accelerating luxury condo market: More and more new condos are geared at the upper crust, prices of existing units are skyrocketing and Millennium Tower alone could represent $1 billion in luxury condo sales.
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Comments
I like the city's recent
I like the city's recent changing of the inclusionary development rules to capture more of this insane luxury revenue and to incentivize more housing in more affordable areas. Credit where it's due there. That having been said, I'd like to see the city and/or the state doing even more on these very high end projects, perhaps a fee at closing that goes to support more affordable housing. That will not dampen the luxury building boom at all, the market is too hot for that. Get creative.
Your ideas are directly
Your ideas are directly contradictory to increasing affordable housing.
If you manage to reduce the new building of luxury condos due to your new taxes all you have succeeded in doing is keeping the wealthy in homes that could otherwise be occupied by the middle class.
Luxury building opens up housing for the rest of us and should be encouraged.
Much of this downtown luxury
Much of this downtown luxury housing is being purchased by foreign speculators or wealthy empty nesters. I don't know that they would otherwise purchase homes in more middle class neighborhoods. Regardless, a fee at closing, as an example, will not dampen this boom in this environment, anymore than currently inclusionary zoning requirements have not dampened it either.
Is that the case?
I haven't seen any demographic data, but it usually takes the census bureau surveys a while to catch up in newly built out areas.
I would also speculate that Boston, being a secondary city, is getting escapees from that sort of speculation in NYC. I know that on the west coast, the hyperinflation of housing and rent costs in Seattle and Portland is driven in part by people leaving San Francisco and Los Angeles due to speculation driven costs there. Portland, Maine also seems to be getting some of this effect going on as people leave the bubbled megacities for less expensive climes (or cash out and retire/downscale their lives).
We may actually be seeing
We may actually be seeing more speculation/investment/money-laundering-all-cash-purchases soon, thanks to FINCEN focusing on the real estate market in NYC. Pushing laundering out of NYC might cause it to move up the coast.
https://www.fincen.gov/news_room/nr/html/20160113.html
Very well documented actually.
Here
here
here
here
here
You get the idea. Long story short: China is leading the charge.
All the more argument for high rises
A half empty high rise is just a little quieter than you would expect. It's not like a half empty street of single family houses, which draws criminals.
I wonder how many absentee owners will want to send their kids to Latin.
The person you are responding
The person you are responding to said they don't believe the fees will reduce the number of luxury units sold. Are high taxes keeping the 1% from buying in NYC and CA? Obviously not. If a multimillionaire wants to buy a condo in Boston a small tax is not going to stop them. They probably would not even notice. The middle class has shrunk by a huge percentage in Boston while the rich have taken over. Time for them to pay up.
Please stop saying 'affordable housing'
It's politician lie-speak, intended to mislead. We all want housing to be true-lowercase affordable. Then we start saying "affordable housing", which really should be capitalized as "Affordable Housing", which is not the same thing, and indeed might be counter to the goal of true-lowercase affordable housing.
Everytime you see someone write or say the lie-speak, call them out on it.
Boston needs more luxury building
Boston needs more luxury building so that the rich people can move there and leave room for the middle class to move into the places they are leaving.
I agree with this position.
I agree with this position. Luxury condos are a great development for the middle class. Frees up the housing otherwise occupied by the more wealthy.
Small cities need to pick up the slack
All these rich people are doing is going to restaurants in the South End anyway. Why can't the small cities do that?
And I do not agree
The people buying these lux condos downtown are not selling $400,000 houses in JP to move there. Rather they are selling their $2.5 million homes in Newton (etc) to move downtown. The people moving in are typically not the Jeffersons "movin on up", but the rich just downsizing to the city. They are not creating opportunities for the middle class to buy their homes.
Then more families can move to Newton
What's the problem?
Nothing Stopped Them Before
As long as they could afford that $2.5 million house. Point is, the rich sell their luxury house to buy their luxury condo, not freeing up anything for the middle class.
And this frees up housing for
And this frees up housing for those who wish to step up from their current home a very positive consequence of development.
Not every condo in Boston in in the millions. Not everyone downsizing into the city is going to the Millennium towers. There are many other small condo developments with much more modest price points within the city.
Doesn't matter what sort of
Doesn't matter what sort of home they are coming from. More housing is more housing. More housing helps ensure availability, availability has a negative effect on price and this ultimately allows for people to live places they otherwise would not.
All of these are positive actions. In fact I cannot name a single negative impact of the increase in luxury housing in the city. Can you?
Negative impact?
Check out Troy Boston. At least 20 of the units sold at Troy are being used exclusively for Airbnb. Extra housing coming online is supposed to help alleviate the rising rents/house costs. When they're being purchased for use as income units such as short term rentals (Airbnb), or being purchased and used to park money (absentee foreign investors), then there is no benefit for the middle class. So those "rich" people who others claim are leaving their $500,000 condos aren't vacating units, they're using them as income and a place to park money, while they reside in their new million dollar condos.
This runaway economy isn't sustainable.
Not even the majority of
Not even the majority of condos are empty. Not all condos are worth millions of dollars. Plenty within the city limit are much more modest in price.
What are you calling modest price?
I'm willing to bet it's far more than many in Greater Boston can even begin to afford.
400k for 2 bed - Fort Hill
,
who
How many can afford $20K to close and $3000 a month when taxes and HOA fees are considered? You're going to need to make about $150K as a single person to live comfortably with those sorts of housing expenses (~33% of net income).
400k is pretty much average
400k is pretty much average for the greater Boston area. A downsize selling a 100% equity house in a suburb of Boston could buy that place pretty reasonably.
Small capes in Hyde Park are going for 500k. What housing market are you living in where you are not realizing that?
My wife and I brought 60k to
My wife and I brought 60k to close and we are young and not particularly rich. It required some hard years of scrimping but was worth it.
Short term rentals are still rentals
We need enough housing that everyone who wants to live in Boston can live in Boston, regardless of whether they want to stay for ten days or ten years.
Short term rental in the housing market do nothing useful.
Short term rentals in housing meant for residents only creates a transient population, drives up cost of living for long term residents and really only enriches those at the top of the food chain.
And those condos are being
And those condos are being rented which still increases the availability of units.
Sure, whatever you say...
How is a condo being rented out on a vacation website creating availability if it's occupied? It isn't it's OCCUPIED! Meaning, it's unavailable.
Which also means there is
Which also means there is another piece of housing that is resultant not occupied. The occupation rate in Boston is extremely high. Building new units is the best way to increase availability.
Building more luxury supply?
Again, this isn't helping the problem. This only means the person making money on vacation rentals, is going to increase their supply of vacation rentals. The middle class is once again getting kicked to the curb. It all goes back to Adam's post "how many rich people can Boston support?". Building more is doing nothing to help the overall situation since only extremely wealthy people are able to buy new units.
We've helped the rich enough. We don't need more luxury housing.
Why are you presuming all of
Why are you presuming all of the condos being built are going to vacation rentals? It is a ridiculous presumption really.
Not every condo being built in Boston is going for 1.5 million dollars tho of course in a growing city like Boston some will.
It doesn't matter because
It doesn't matter because there are no limits on ownership for people who don't have residency. It's not sustainable to try to build for all of it.
I fixed this for you
Extra housing coming online is supposed to fill whatever purpose the person purchasing the unit desires.
Is renting out condos
Is renting out condos exclusively on services like that allowed? What can be done to reduce that?
The only way to limit it
The only way to limit it would be if it's specified as not-allowed in the condo association documentation. There's definitely condo buildings around the city that specifically disallow renting out your unit.
Is This A Fact?
I feel like there are a lot less wealthy people who can afford to leave their million dollar + homes for a luxury condo as opposed to middle class people who would fill up those houses. Not to mention a lot of the new owners of those luxury condos aren't necessarily from the local area. That argument sounds like a reach.
Your argument has a premise
Your argument has a premise that the people moving into these luxury units are coming from/vacating "middle class" units. I don't think there's any conclusive data to support that premise, or refute it -- but there's lots of tangental stories that suggest that the buyer market is in part significantly made up of Chinese investors & well-heeled empty nesters. If that's the case, the abundance of luxury buildings really is fundamentally shifting the demographics of the city rather than opening up middle class housing stock.
How about a tax on units in new buildings that remain vacant after 18 months? This isn't a panacea, but would address some of the luxury excess in places -- look at lots of the new luxury buildings in the Fenway area that they're still trying to fill. This would incentivize developers to build in a way that creates units that are a "realistic market rate" -- the price that people will readily pay and fill the building, rather than holding out for pie-in-the-sky prices (i.e. $3800, 650sq.ft. one bedrooms).
"How about a tax on units in
"How about a tax on units in new buildings that remain vacant after 18 months?"
What a great way to encourage people not to build. Great idea!
It's a tax targeted to
It's a tax targeted to specifically discourage the building of ultra-expensive units (or the downsizing of rents in the units when they don't fill), while still affording a comfortable period of time for developers to find tenants/buyers. It just encourages them to build conservatively (in amenities, finishes, etc.) rather than extravagantly (marble counters, concierge, rooftop grills, etc). It's still a lucrative market that developers will be drawn to participate in, but keeps them away from pie-in-the-sky scenarios.
This is a draft concept, I'm sure there are other safeties that can be thrown in; a % or # of units allowed to be vacant before the tax kicks in, or allowing building owners to petition or meet a criteria for a period if they can prove an exceptional circumstance.
I have a sneaking suspicion
I have a sneaking suspicion builders have a better idea of what sells than NIMBYs wishing to control the housing stock.
The problem is that what's
The problem is that what's selling isn't necessarily going to locals who need housing, rather than investors.
Regs destroy middle class housing
I would bet that fire regulations have more to do with raising the cost of housing and limiting land use than anything else.
Taxes might not be enough.
Taxes might not be enough. There needs to be better requirements on ownership requiring residency. Otherwise you won't significantly limit demand in a way that's productive towards housing.
It's great if housing is actually freed up
But that isn't always the case. Sometimes houses are just bought and no one actually lives there. It just drives up prices without freeing up older homes for the middle class.
http://www.theguardian.com/uk-news/2015/jan/25/its-like-a-ghost-town-lig...
Can the middle class afford
the homes the rich are leaving?
Well sure
If you neatly define all families as
* Section 8
* Middle Class
* Rich
There are many gradients. Every new piece of supply at one gradient pushes down the price a bit of the nearby gradients too -- so now the well-to-do housing is a bit cheaper. That allows someone who would have purchased an upper-middle class home to stretch into the well-to-do, thereby reducing demand in the upper-middle by a smidge. Etc.
It's not likely that building luxury condos on the waterfront is going to make rent cheaper for the four undergrads living in Brighton. But it will help bring down housing prices at middle and higher levels, and it's generating property tax which allows the city to make capital and operating improvements throughout the city, including in that neighborhood in Brighton.
I'm not a trickle downer, but more people living downtown (et al) means more jobs associated with residents downtown. Dry cleaners and convenience stores, etc. Not great jobs, but jobs nonetheless. That's good too. More people living downtown instead of Newton (etc) also frees up more room on the subway.
Not every condo sold will be to a couple in Newton. Some will go to investors and stay empty (taxes but no service requirement!). Some will go to people moving in from out of town (new ideas, exchange of culture, and bringing their wealth to our community!). Some will get air bnb'd (more tourism dollars supporting restaurants, taxis, culture, and the jobs therein!).
Bottom line: there's some impact in lowering the price of some housing in Boston, there's a net increase in tax revenue (minus additional services required), and there are both short term construction jobs and longer term positive job impacts as a result. Plus, maybe a little less pressure on the commuter rail and subway during rush hour.
I agree with most of what you said,
But the people who are going to be working the jobs at the convenience stores, restaurants, dry cleaners, etc. won't be living in Boston, because they can't afford it.
That means they will be living in suburbs like Lynn, Quincy and Chelsea. Until we improve public transit capacity and frequency, all those people will be forced to drive (if they can afford it) and continue the inevitability of constant gridlock.
Wrong
People living in Quincy and working in Boston at convenience stores and dry cleaners aren't driving into the City everyday.
That's part of my point
They are taking the T. But unless we increase capacity on the T, they won't be able to take the T. And if they are lucky enough to be able to afford to drive to the city (not likely with parking costs), they will be stuck in gridlock because nobody can fit on the T.
Bottom line -- we need to fix the T.
You are joking, right?
n/t
Error
People are not vacating middle class housing for these units. Upward mobility has been crushed in this country by the people who are buying and selling these luxury units.
Luxury housing crushes upward
Luxury housing crushes upward mobility? Lol
Hate to break it to you
but even "rich" Bostonians are arguably getting priced out of the luxury stock by foreign investors (see my response to Swirly above for links).
Where are the wealthy moving here from?
If it's Milton, you'd be right.
If it's Illinois or Sweden, no. And If these are being bought by overseas investors or to house the progeny of the Aga Khan while he attends BU, then no.
hmm
So you are saying the homes will just trickle down to the middle class?
No, I am saying an increase
No, I am saying an increase in availability ultimately benefits everyone. Or do you prefer the near 100% occupancy rate in the Boston area that currently exists?
If an increase in availability benefits everyone
then why have we been hearing about displacement and the shrinking middle class for years, despite the building boom?
There are a variety of
There are a variety of reasons people are being displaced from the city and the middle class is shrinking. New development is however not one of them. New development is of course not a panacea, but nobody made that claim.
The occupancy rate in Boston continues to decrease despite the building, all that tells you is there is not enough building happening.
Uhhh
Are you serious? Then why did the mayor just launch (an extremely token) program to get developers/landlords to buy houses and keep them affordable instead of renovate or raze and rebuild them into "luxury" units?
And how the hell does a decreased occupancy rate tell me that we need MORE? Luxury buildings are reportedly panicking because of oversupply, meanwhile people are being displaced all over the city. Do the math man.
That's not sustainable to due
That's not sustainable to due to the current policies which contribute to population growth as well as large amounts of non resident investment. There's always going to be more demand. Set up policies to accommodate local demand first. The local housing market already has enough demand.
Oh goody, more snotty brats
Oh goody, more snotty brats racing Daddy's Mercedes through the streets of Boston, striking pedestrians and getting away with it.
Are you people insane?
Someone moving into a multi-million dollar condo does NOT "free up" housing for the middle class. Do you really think they are moving in from some garden level studio in Brighton? No. They are moving into town from their mega mansions in Wellesley and Weston, or their Commonwealth Avenue townhouses - freeing up housing for more wealthy people like themselves. And believe me when I tell you that they do not make good neighbors.
More housing is more housing
More housing is more housing is more housing. More housing ensures there is more product to meet demand. This is always a good thing.
Look at the Mandarin
Check out the lights in the windows at the Mandarin on any given night. You won't see many. It's luxury condos on the upper floors and hardly anyone is ever there. Buying luxury housing doesn't free up housing stock unless you are planning to squat in an apartment that someone with five other homes has left unlocked for you. It just means another investment for foreigners and the uber-rich. The more that's built, the more they'll buy and it means nothing for the rest of us except that housing prices get driven up by their wealth and willingness to park it here. At least it also means the lines aren't much longer at Trader Joe's because their staffs aren't here, either.
The vacancy rate has been
The vacancy rate has been decreasing in Boston despite all of the new condos. That flies in the face of your anecdote.
Pretty Vacant
Just because a unit is owned or rented does not mean it is not vacant of people actually living there full time.
Do you have any stats to back
Do you have any stats to back up your position?
What do you propose happen to people who own property or rent property they do not occupy? What business is it of yours really? Sounds like a good deal for you as a Boston taxpayer.
Uh
Maybe because they're either vacant, or they're out spending money at local eating and drinking establishments. Or on vacation, or asleep.
Uh, no.
The very rich don't find a whole lot to do here. Sure they come around, for a few weeks or months a year, if that. If you can afford to spend many millions on a Boston condo, you can also afford to live somewhere marvelous in the winter when Boston is awful. You also go elsewhere for the summer because you have at least one summer house. You'll probably skip Boston for much of the spring, because a Boston spring is a continuation of winter. Might as well use your Manhattan place. So you're here for a little while in the fall, when Boston is charming and you have an appt. to see your favorite doctor. You also stay in your condo when you visit your kid, who is in college and lives at the Ritz. Talk to people who do live in these luxury buildings, and even the not-so-luxurious ones along Beacon Street. They'll tell you that they often feel like ghost towns, especially in winter and summer.
And despite the massive
And despite the massive increase in the tax base by these affluent people which don't cost the city much if anything in public services the city is still broke.
Why?
The city is not broke
The city is not broke
Not broke, no.
But aren't there looming financial shortfalls? We're nowhere near Chicago/Illinois in terms of unfunded liabilities but there are big gaps in the future obligations we have to retiree health care for city workers and funding. The schools certainly require a lot of money and that's not changing, likely one way or another.
Municipal costs continue to
Municipal costs continue to rise, mostly though not exclusively in the area of employee healthcare. And Prop 2 1/2 limits how much revenue the city can raise to match that on a yearly basis, it barely keeps pace with inflation. The new construction is not subject to Prop 2 1/2 initially which helps the city offset some of this but as I stated in my initial comment above, the city is still not capturing enough revenue from these very high end properties to do much beyond making up the difference. That's how you get a school budget that increases but has a net deficit compared to inflation, putting aside structural deficiencies in BPS for the sake of simplicity at the moment.
Is medical care boom fueling luxury housing
Most 1% income earners are doctors, dentists, insurance & finance, real estate.
So if I'm reading you right, the medical boom of 4% cost rise per year can't turn into matching growth in land tax income for the city because that number is tied to the overall inflation rate?
So that is why Bernie is winning the young
I wondered why I was seeing young people around me struggling and never making any gains here. The place claims to be booming but regular people who are equipped in all the right areas can't thrive. Also it looks shabby. What is the deal.
Young people are mandated to buy medical insurance that they can't afford to use, or even if they do, they will not as a group use what they are paying.
That money is showing up in high salaries for doctors, dentists, lawyers, finance & insurance people, and real estate people in Boston because it is a medical and insurance center.
The health costs rise at 3.9% (national number), the city is on the hook for that, but the city loses money in real terms because it can only raise taxes 2.5% per year. So it pays out for the health insurance but can't recover the windfall for the doctors.
That's why it's having this effect in Boston. Eventually these lines will cross and every dollar the city spends will be on health insurance. In that world, yes there would be a bunch of doctors and lawyers living in $million condos and candystripers living in the projects and everybody else would be gone.
HELLLLO Bubble!
In case people can't see this, there is totally a bubble in the luxury condo market. The current pace of building and pricing is totally unsustainable.
In the coming years, something will happen (economic slowdown most likely) and suddenly everyone will be moaning about over supply. There will be bankruptcies and a general resetting of the market. If people are right about 25% of these luxury units being sold to investors (I'm skeptical), those will be the first to flood the market when the economy falters.
So what you're saying is that
So what you're saying is that thanks to the overbuilding we're having now, in a few years, housing will suddenly get more affordable? I can't see how that's a bad thing, at least for the non-homeowners! Indeed, this is the way the market has traditionally supplied affordable housing: speculators get too eager and build housing that ultimately never turns them a profit.
Yeah pretty much
A million dollar condo isn't going to suddenly become "affordable", but it might drop where "normal" people could consider buying it. Or they will become rental properties at a lower price point than they would demand now.
I think 25% seems comically
I think 25% seems comically low.
Who knows? Maybe it is too low
Let's say it's more than 25% being bought as investments. Once the rising prices on these places slows (i.e. the bubble bursts), there will be a wave of investor sales that will potentially flood the market, driving prices of these places way down.
Today's CNBC Headline
"Wells Fargo offering 3% down mortgages"
Might as well have been "Here We Go Again"
The difference - the rich may actually take it on the chin this time around. Nobody's talking about a bubble in middle class housing - if anything - there isn't enough. Yet the Million Dollar Babies are everywhere - for now.
People talk about the great Obama economy and how we are in recovery - and we are - but ALL of this is propped up by ZIRP (zero interest rate policy) - and in many parts of the world, NIRP (negative interest rate policy).
There is at some point a limit in the Federal Reserve's ability to keep interest rates low. If/When that happens - watch out - it will blow our real estate market out of the harbor.
Bubbles right now - my opinion - beware longer term bonds and real estate - which is effectively a long term bond.
Great timing
Perfect timing. On a flight out to CA last week, I watched "The Big Short" for a second time.
I thought the feds just
I thought the feds just raised rates last fall ?
Ok
Did the Boston market crash during the last economic slowdown? Are you really predicting the economy will slower even more than the current 2% GDP growth rate? But I thought Obama has done a great job stimulating the economy?
It Doesn't Free Up Middle Class Housing
It turns previously luxury housing into middle class. There was just an article on here the other day about how many people are moving from Millenium Place to Millenium Tower so that they can stay in the newest and most exciting development.
Now the people at Millenium Tower have to lower prices/rent to attract people because they no longer have the swankiest building on the block. Then, people from the 3rd swankiest building move into there, further lowering prices next one down...
Or alternatively, these new luxury buildings are so oversupplied, that they have to start giving away free months rent or other concessions just to fill them.
Increasing supply doesn't always have to come from the bottom up. Oversupply at the top can create downward pressure.
Define "luxury condo"
What exactly is a "luxury condo" anyway?
Read
It is defined in the article.
A Strange Definition
The article describes luxury condos as units in a "full service" building that is over 15 units and has parking.
That is a strange definition with multiple problems. What defines "full service?" Having a door man? Having a gym?
There are lots of luxury buildings in the South End/Back Bay that don't have door men. And there are a lot of large full service buildings in outlying neighborhoods that are designed more for middle income owners.
Luxury has to do with fixtures/quality/price, not size and number of amenities.
Worldwide Cash and not so many options
Keep in mind the number of extremely rich Chinese that are trying to escape the air pollution of China, the wealthy escaping from the issues in Venezuela, Brazil, North Korea, etc....and how many safe culturally rich cities exist around world? especially those that they can send their kids to world class colleges in? there is likely a bunch of illegal money being laundered but there is also alot of wealthy people seeking safe places to live. the bigger question not being asked is what is going to happen when all these cultures collide and all the rich from each culture that are used to getting there way 100% of time get it up against one another as neighbors in the condo high rises, with kids in the local private , public schools and colleges?
The insuing conflict
....will make for great Uhub fodder for decades to come!
The more, the better?
All those millionaires paying property taxes and barely using any city resources, especially the ones who buy one of those million dollar 500sqft glass box studio as a pied-a-terre - what more could you possible ask for?
Transit and other important
Transit and other important measures for locals can't support endless development.
Bernie wants to know how many rich people can
support Boston.
Set limits on not resident
Set limits on not resident ownership like other countries do. We can't build for all possible investors.
The only things that will
The only things that will help long term are reducing the amount of our real estate than can be sold to people who aren't already residents. There is always going to be more demand for investments than what we can build for. Also, we are adding to our population far in excess of stable growth.
Other places prioritize housing for locals while limiting purchases by non residents. Anything else isn't really sustainable.
Uh yeah, good luck with that
So, you're saying that a piece of real estate could only be sold to a current resident?
Sure, good luck with that.
Sounds even more lovely...
And with the wealthy,comes the aversion to minorities like me. I've resided in my area for some time and have personally witnessed gentrification in tandem with subtle racism. It's typical to see the purse clutchers,the double starers, and such. Boston Strong,amirite? Oh wait-that don't apply to me. Just a gimmick for touristey and moneybags types...