The Housing Shortage – Are There Solutions?

By Phillip Sego and Suzanne Preston Blier

Phillip Sego was an environmental advocate, lobbying for the Massachusetts Sierra Club from 1995 to 2015. In Cambridge, he has authored zoning petitions targeting the preservation of open space.

Suzanne Preston Blier, a Harvard University professor, teaches a course on Cambridge history and civic issues, authoring an array of blogs with insights from the city databases. She has authored several articles on urban planning and the future of the city with a special focus on Africa and leads a citywide civic group, the Cambridge Citizens Coalition focused on neighborhoods, smart planning, and transparency.

After reading articles and comments that appeared in local newspapers, we saw that there were misunderstandings about the causes and potential solutions to the complex issue of our housing shortage. Years of research as to what is causing housing shortages around the globe, what has worked to solve these shortages, and what has failed led us to believe that some of the simplistic ideas are not sound solutions.

The following isn’t necessarily meant to take sides in any debate or to offer any specific solutions, but to simply provide more background. Hopefully, the reader will be able to see the complexity of the issue and work for policy changes and long-term effective solutions.

Most importantly, housing shortages aren’t confined to the Boston area. This is a global problem that’s being dealt with in a number of ways. For example, China has been constructing entire cities not just for their current population, but for their projected population.[1] Some cities have created areas of high density such as Rosslyn in Arlington, VA, and Manhattan’s Hudson Yards.[2] Other cities are simply densifying, unfortunately having the effect of displacing low- and moderate-income residents.[3]

Housing shortages result from a complex interplay of factors such as migration patterns, the desirability of certain regions, increases in the money supply,[4] restrictive zoning laws,[5] rising construction costs,[6] attractive investment opportunities, on-campus housing shortages,[7] and other market dynamics. This article attempts to explore these factors and how they contribute to housing shortages, with a specific focus on the Boston metropolitan area.

Historically, most cities in the USA and abroad began as small settlements and expanded and densified due to migration and population growth.[8] As time went on, some cities have found that uncontrolled and/or unplanned growth has had serious repercussions. For example, Mexico City, with a current population of 22 million, has run out of water.[9] The traffic in Palermo, Italy, is having a crushing effect on the city’s economy.[10] Numerous cities have experienced increasing levels of air pollution.[11] While the Boston area doesn’t face the problem of severe water shortages, the issue of outgrowing resources and infrastructure is still an important problem that needs to be addressed.[12]

Around the globe, city planners are asking critical questions, such as how much and how fast a city should grow. What are the short-term and long-term consequences of increasing urban density? Is there an ideal density?

Some years ago, at a political event, a local realtor was asked, “How many people want to live in Cambridge?” He replied, “About a million.” While his answer was unscientific and not meant to be taken seriously, it’s still a fair question. The takeaway is that there are far more people who wish to live here than we can (or possibly should) be capable of housing.[13] Cambridge already ranks # 5 most dense cities in the U.S. with a population over 100,000 (following NYC and San Francisco) according to U.S. Census data[14]. How much denser do we want to become? And what will be the impact in terms of potential existing home demolitions and the environment?

Migration significantly impacts housing availability and affordability. Boston has long been a magnet for both domestic and international migrants, attracted by its prestigious universities, robust job market, and cultural amenities. Between 2010 and 2020, the Boston area’s population grew by 12%, intensifying the demand for housing.[15] The influx of new residents has strained the existing housing supply, pushing up prices and reducing availability. At the same time, Harvard, MIT, Lesley, Boston University, Boston College, Brandeis, Tufts, Wellesley, Emerson, Northeastern, and many other colleges have attracted students but not provided an equivalent amount of housing.[16] In Cambridge and Somerville, some small two-bedroom apartments have been converted to 6-7 bedroom mini-rooming houses, as a two-bedroom apartment may rent for $2,500-$4,000 per month, but a seven-bedroom can rent for $7,500+ per month.[17] At the same time, increasing numbers of two family homes in the region are being converted into single family homes.

The desirability of the Boston area as a place to live further exacerbates housing shortages. Renowned for its educational institutions, healthcare facilities, and historical significance, Boston consistently ranks high in quality-of-life surveys.[18] This desirability draws individuals and families who are willing to pay a premium for housing, thereby increasing demand and prices. Our concentration of technology companies attracts many highly-paid young professionals.[19] Our cultural offerings attract retirees.[20]

Economic policies that increase the money supply can inadvertently drive up housing prices. Lower interest rates, a consequence of such policies, make borrowing cheaper, encouraging more people to take out mortgages. This increased purchasing power leads to higher housing demand and prices.[21] Moreover, low-interest rates attract investors seeking real estate as a hedge against inflation, further constraining the supply available for primary residents.[22] Today, high interest rates are having the reverse impact, and many communities have yet to recover from the economic impacts of COVID, with a downturn in needed supplies and workers alike.

Overly restrictive zoning laws can also limit housing development. While most of the region’s communities have regulations that restrict building height, density, and setbacks, some are overly restrictive, impeding the construction of lower-cost multi-family housing units.[23] These laws may maintain the character of neighborhoods but also can reduce the overall housing supply, exacerbating shortages and driving up prices. Zoning is an important tool used to separate manufacturing and entertainment areas from residential areas.[24] It can be used to stabilize a community, making it less likely that existing homes will be torn down to make way for ‘urban renewal’ towers, as occurred in many parts of the Boston area.[25]

In recent years, tariffs on imported materials, supply chain disruptions, and a shortage of skilled labor have driven up construction costs.[26] In the Boston area, the cost of construction has increased by over 50% in the past decade, making it more expensive to build new housing.[27] These higher costs deter developers from undertaking new projects, slowing the addition of new housing units to the market.[28]

The rising costs of construction materials and labor also contribute to housing shortages. New construction costs have skyrocketed, jumping from $110 per square foot in 2010 and having increased 60% in recent years.[29] New construction traditionally holds down the costs of housing, as it can be cheaper to build new homes instead of renovating older ones. However, increases in construction costs have contributed to residential price inflation. New municipally constructed “affordable” apartments have been costing $1 million, which severely limits the ability of municipalities to embark on large-scale construction projects.[30]

The trend of purchasing second homes has further strained Boston's housing market. Wealthy individuals often buy properties in desirable urban areas as vacation homes or investment properties. These second homes are often left vacant for much of the year, reducing the available housing stock for full-time residents.[31] This practice has contributed to rising home prices and rental rates.[32]

Short-term rentals, facilitated by platforms such as Airbnb and VRBO, have become increasingly popular in the Boston metropolitan area. With over 1000 reported Airbnbs[33] and over 300 VRBOs[34] in Cambridge, we clearly need a more restrictive policy that limits vacation rentals, as well as effective enforcement of existing laws will lead to more units available for year-round residents. Although Cambridge restricts short-term rentals to those who live on the property, there have been numerous reports of this being widely ignored.[35] Property owners often find it more profitable to rent out units on a short-term basis to tourists rather than to long-term residents.[36] This practice reduces the number of units available for permanent housing, contributing to shortages and higher rental prices.[37] Increasingly, SROs (Single Room Occupancy units) are also in play. In Cambridge these are often high-end rentals for shorter-term visitors, post-doctorate students, fellowship holders, among others.

Proponents of market-rate housing often cite the filtering theory, which suggests that as new, high-end housing is built, older housing becomes more affordable as it "filters down" to lower-income households.[38] However, this process is neither immediate nor guaranteed. In many cases, older housing stock does not depreciate in value due to continued demand, renovations, or speculative investment.[39] Consequently, the filtering process may be too slow or ineffective to provide relief to those in need of affordable housing.[40] And, much as “trickle-down” theory never worked well in economics, it also does not work well in housing. Few people who purchase expensive homes chose to move out of them to more expensive homes in the city when they become available. Instead, they may spend their money on an array of renovations.

Even when new housing is created, this is typically done as market-rate units. These units, which often sell for $2 million (or more), have no effect on the availability of housing for the vast majority of those seeking housing.[41] The law of supply and demand, which has been touted as a solution for skyrocketing housing costs, has not worked in any city worldwide.[42] Nearly two-thirds of Cambridge housing (including condos) are not owner occupied[43]. New condos are often purchased by investors, who then rent them out at higher lease rates. Similarly, increasingly national housing investors are acquiring many of Cambridge new rental properties, adding still further to the costs incurred by those who want to live here.[44] In light of the earlier comment from one realtor (how many people want to live in Cambridge? One million), the MAPC’s estimate of 200,000 needed homes may not be realistic.[45]

A key problem in Cambridge and many other nearby communities is that there is so little land (Cambridge has only around 6.3 square miles).[46]Because there is so little of it and there is so much demand, the land cost and value has skyrocketed. That makes any building project expensive, and new developments have sprung up in those neighborhoods where land costs are a bit less high, eg. North Cambridge, Riverside, Cambridgeport, the Port, and East Cambridge. This encourages further gentrification and. It also causes nearby property values to rise, increasing the taxes one has to pay, resulting in a higher burden on lower-income and middle-income residents. 

Many housing advocates have been claiming that the “law of supply and demand,” is the only way to bring down housing costs is to build large quantities of new units. While this popular concept is commonly used as a model for commodities, in practice, there is no case, worldwide, where this has been successfully applied to housing. Patrick Condon, in his book "Broken City - Land Speculation, Inequality, and Urban Crisis" states that the simple reason is that land has become an asset rather than a utility. Since the year 2000, Cambridge has built over 8339 new housing units[47], resulting in a population increase of 16,859.[48]

But despite this enormous increase in supply, in September 2024, the median home sold price in Cambridge, Massachusetts, was approximately $990,000, while in the year 2000, the average home selling price in Cambridge was between $400,000 to $450,000, a 133% increase.[49]

It's illogical to think that Cambridge or any Boston area municipality, acting alone, could possibly build enough to decrease the pressure on regional home prices. The MBTA Communities Act is one potential method to add housing somewhat equitably throughout the region.[50] Unfortunately, some communities are against enacting it, while others have figured out how to enact it but render it inapplicable. Other communities have taken it to heart: Boston, Cambridge, Somerville, and others have added more housing than required under the Act.[51] If followed, the MBTA Communities Act would go a long way to providing some regional relief from housing pressure, but even adding 200,000 homes won’t restore affordability to desirable locations.[52]

Another proposed solution is the construction of a high-speed rail line to Worcester, taking advantage of the low housing costs there.[53] But, as it has been pointed out, people already live in those houses—and an influx of new residents would force them out—but to where?[54] This has the net effect of moving the problem without solving it.[55]

A critical issue that must be addressed is climate change. Portions of Cambridge, Boston, Somerville and other nearby communities are less than 15 feet above sea level. Within 100 years, large portions of the Boston metropolitan area will become uninhabitable.[56] Boston’s Seaport District has only a few decades left—at the most. Anything we build now at less than 25 feet above sea level will need to be replaced.[57] Already, some homes that are at 8 feet elevation are experiencing flooding.[58] Sea walls can delay some of the smaller storm surges, but we cannot hold back the Atlantic Ocean.[59] Plus adding more housing in a dense city such as Cambridge means that new buildings will replace existing green spaces and trees, further exacerbating environmental problems from rain runoff to heat island impacts.

Regional housing shortages are a multifaceted issue influenced by a myriad of problems. Addressing these challenges requires a deeper understanding and comprehensive approach. Enriching developers of new $2+ million homes will not solve this, nor can Cambridge solve it alone.

There are a myriad of approaches that have the potential to ease housing shortages.

Upzoning and Densification. As stated above, this is the traditional method that has created the vast majority of the world’s cities. While some cities have the ability to support an increase in population, others may have already outgrown their infrastructure (water/sewer/electric and other utilities, schools, fire and police). Some of these are scalable, others would require significant investments. Traffic and the resultant pollution is also an important criteria; some cities already have unhealthy air quality.

Limiting the erosion of housing units. There are numerous ways that housing units leave the market: Airbnb and VRBO, combining units, and vacancies. Many cities have restricted Airbnb/VRBO-type short term rentals; some have completely banned it. Following a national trend for seeking larger dwellings, Cambridge has also seen the conversion of some 2- and 3-family homes to single family dwellings. This can be alleviated by changes to zoning laws that prohibit this type of conversion.  Lastly, there are numerous instances of long term vacancies. Often these are the result of sales to REITs and overseas investors, who see long-term profit in municipal real estate investment.[60] While this has been controversial in cities such as Honolulu, the number of units owned by real estate investors should be ascertained and potentially addressed.

Restricting college admissions. Both Harvard and MIT admit many more students than they house. Additionally, many graduate/post-doctorate students, and interns from other schools and hospitals chose to live in Cambridge. They take up approximately 10% of our current housing stock. Students may add to the vibrancy of the community, they also have been taking an increasing number of apartments from the city’s longtime residents.  For example, 1,380 MIT undergraduates and 4,200 MIT graduate students live off-campus.[61]  At Harvard, approximately 10,600 students live off-campus.[62]

Embarking on a Finland-style housing program. Finland has a “Zero Homeless Strategy” which focuses on the unhoused. While this is may be tangential to the housing pressures that the Boston area faces, Finland’s commitment to creating needed housing has been highly successful.[63] Nevertheless, Helsinki is in the top 22% of the most expensive cities in the world.[64]

Creation of new urban centers. China has been at the forefront at creating entire cities that house 1 million or more, connected by high speed rail, which are built complete with schools, supermarkets, and other amenities. Xiongan is an example of an even larger planned city and is being promoted as an “ideal’ solution to China’s housing shortage.[65] While this type of solution isn’t being considered locally, there have been discussion of densifying a nearby city which already has a rail connection, eg Lynn and Worcester. Worcester has the advantage of being significantly inland, which will be critically important by the end of this century.

In summary, solutions for increasing housing costs are highly complex. Simplistic ideas may sound logical, but in order to provide housing to those who live here as well as those who will be moving here, we need to take on the long-term work for policy changes and effective solutions.

Citations:

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[1]  Wade Shepard, “Ghost Cities of China: The Story of Cities without People in the World's Most Populated Country” (London: Zed Books, 2015).

[2] Jonathan O'Connell, "In Arlington's Rosslyn, Change Goes Up and Up," The Washington Post, July 20, 2015.

[3] Richard Florida, "The Gentrification of Cities," CityLab, October 12, 2018.

[4] David Miles and Jochen Schanz, "Quantitative Easing and the Housing Market," International Journal of Central Banking 10, no. 2 (2014): 217-222.

[5] Jenny Schuetz, "Land Use Regulation: An Overview," Urban Institute, January 24, 2019.

[6] National Association of Home Builders, "The Impact of Building Material Costs on Housing Affordability," NAHB, July 1, 2021.

[7] John Bounds, "The College Housing Crunch: Why Universities Can’t Build Fast Enough," The Chronicle of Higher Education, October 15, 2019.

[8] Edward Glaeser, “Triumph of the City” (New York: Penguin Press, 2011).

[9] David Barkin and Olivia Harris, "The Water Crisis in Mexico City," Mountain Research and Development, 1982.

[10] Roberto Benigni, “Palermo Traffic Issues: Economic Impacts,” (Palermo, Italy: Economic Press, 2015).

[11] William H. Becker, “The Air Pollution Dilemma” (New York: Academic Press, 2012).

[12] Boston Planning & Development Agency, "Population Change in Boston," BPDA Research Division, April 2021.

[13] Chris Glynn, "The Second Home Market and its Impact on Housing Affordability," Zillow Research, March 2020.

[14] United States Census Bureau, “Decennial Census by Decade.” Data retrieved November 27, 2024.

[15] Boston City Council, "Report on Rooming Houses and Overcrowding," Boston City Council Housing Committee, May 2022.

[16] Ibid

[17] Ibid

[18] U.S. News & World Report, "Best Places to Live in the U.S.," U.S. News & World Report, 2021.

[19] Michael Storper and Allen J. Scott, "Rethinking Human Capital, Creativity and Urban Growth," Journal of Economic Geography 9, no. 2 (2009): 147-167.

[20] Richard Florida, "The Gentrification of Cities," CityLab, October 12, 2018.

[21] David Miles and Jochen Schanz, "Quantitative Easing and the Housing Market," International Journal of Central Banking 10, no. 2 (2014): 217-222.

[22] Jenny Schuetz, "Is More Market-Rate Housing the Answer to the Affordable Housing Crisis?" Brookings Institution, May 7, 2019.

[23] David Rusk, "Inclusionary Zoning: A Key Tool for Fair Housing," Shelterforce, July 23, 2020.

[24] Jenny Schuetz, "Land Use Regulation: An Overview," Urban Institute, January 24, 2019.

[25] Boston City Council, "Report on Rooming Houses and Overcrowding," Boston City Council Housing Committee, May 2022.

[26] National Association of Home Builders, "The Impact of Building Material Costs on Housing Affordability," NAHB, July 1, 2021.

[27] Ibid

[28] Ibid

[29] Boston Globe “The $600,000 problem” Tim Logan and Catherine Carlock. Dec 22, 2023

[30] Boston Planning & Development Agency, "Population Change in Boston," BPDA Research Division, April 2021.

[31] Chris Glynn, "The Second Home Market and its Impact on Housing Affordability," Zillow Research, March 2020.

[32] Ibid

[33] Airbnb search for rentals in Cambridge. Retrieved Nov 10, 2024

[34] VRBO search for rentals in Cambridge. Retrieved Nov 10, 2024

[35] Ibid

[36] Mike O'Brien, "The Impact of Short-Term Rentals on Boston's Housing Market," Boston Globe, August 2, 2021.

[37] Ibid

[38] Jenny Schuetz, "Is More Market-Rate Housing the Answer to the Affordable Housing Crisis?" Brookings Institution, May 7, 2019.

[39] Ibid

[40] Ibid

[41] Ibid

[42] Richard Florida, "The Gentrification of Cities," CityLab, October 12, 2018.

[43] According to the American Community Survey, 33.6% of occupied housing units in Cambridge, Massachusetts are owner-occupied, while 66.4% are rented. This is similar to the national average of 64.8%. Data retrieved November 27, 2024.

[44] Connected Investors, Investment Properties in Cambridge, MA. “There are 7,236 property investment opportunities” [in Cambridge Massachusetts], of which 967 investment properties are listed for sale. Data retrieved Nov 7, 2024.

[45] Boston City Council, "Report on Rooming Houses and Overcrowding," Boston City Council Housing Committee, May 2022.

[46] US Census Bureau data, Cambridge Massachusetts. Data retrieved September 12, 2024.

[47] City of Cambridge Community Development Department Open Data Portal. Data retrieved September 17, 2024

[48] US Census Bureau data, Cambridge Massachusetts. Data retrieved September 12, 2024.

[49] Redfin Cambridge, MA Housing Market. Data retrieved November 2, 2024

[50] Boston Planning & Development Agency, "Population Change in Boston," BPDA Research Division, April 2021.

[51] Ibid

[52] Ibid

[53] National Association of Home Builders, "The Impact of Building Material Costs on Housing Affordability," NAHB, July 1, 2021.

[54] Ibid

[55] Ibid

[56] Earth.org "Coastal Flooding by 2100," Based on data from NOAA. Earth.Org Ltd, Hong Kong. August 2024

[57] William H. Becker, The Air Pollution Dilemma (New York: Academic Press, 2012).

[58] Ibid

[59] Ibid

[60]  “Why Do Efforts To Impose Higher Taxes On Empty Homes In Honolulu Keep Stalling?”  Ben Angarone, Honolulu Civil Beat. August 22, 2024

[61] MIT Institutional Research, retrieved August, 2024

[62] Harvard Housing Services, retrieved August, 2024

[63] Finland’s Zero Homeless Strategy: Lessons from a Success Story, Ecoscope, December 13, 2021

[64] Cost of Living in Helsinki, livingcost.org. Retrieved October 20, 2024

[65] New ‘future city’ to rise in southwest China, Jacqui Palumbo, CNN Style. February 9, 2021