Developers are not ruining Boston, NIMBYs are

Over the weekend a man called Mike Pecci published a heartfelt anti-development piece on Medium called “They are ruining my city”. Unlike some others, he neither hates Boston nor offers up sacrifices of cyclists to the god Automobilius and so deserves a better response. Unfortunately, there’s too much to write about, so it’s difficult to organize it all.

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Pecci’s argument is that the development going on in Boston right now is driving up the City’s rents and ruining its character:

The real-estate market is out of control. Our city is being infested with high priced condo units. Homeowners/renters have been raising the prices on apartments and to prices that require a huge salary to afford. The blue-collar work force is being pushed out of the city, and all of the underground artist communities are being squashed. Boston is becoming the land of the rich yuppie — the students with over priced apartments paid for by their parents. It’s hard to not feel like heavily paid city officials are looming over the city, which I love, with a giant fire hose and just washing out the underpaid.

They are washing away the character that I love and replacing it with one giant open-air mall.

Character can be safely ignored. It’s undefinable, vague, immeasurable, subjective — as Ada Calhoun noted in her history of St Mark’s Place in New York City, “But the history . . . is more complex than even many of its cheerleaders realize. The area has undergone constant, and surprising, evolution in the past four hundred years.” Character is a sadly common justification for opposing new housing, even 100 percent affordable housing, in places like San Francisco and, especially in suburbs, is often a racist code word.

But the rent: there we’re dealing with solid, empirical fact. Like many people, Pecci has fallen into the error of believing that the new development is causing higher rents. On the surface, this seems justifiable, because new buildings have such high rents and there’s a building boom going on.

Essentially the problem is that housing supply is inelastic, that is it does not respond to changes in demand quickly. While the Boston Redevelopment Authority has a reputation for approving just about anything, the BRA process is just the tip of the iceberg in Boston: demolition, building, water and sewer hookups, the design of fire alarms and how cars access and egress a site all go through their own processes. “Historic resources” and proximity to parks add their own review processes. All that delay translates into higher upfront costs and more risk. In Seattle, for example, the housing market is impossible to predict more than 18 months in advance and added review caused a decrease in the number of housing units built.

As Chris Bradford writes, “The surge in new supply thus tends to coincide with a peak in housing prices. Neighborhood residents . . . infer that rising density is the cause of high prices. They forget that prices were spiking when the market was static.”

He also pointed out that single-use zoning districts greatly exacerbate the problem because the gap between a zone for detached single family homes on large lots and apartment buildings is technological. A wood-framed house is simple and cheap to build, but multi-story apartment buildings and high rises require more complex and more expensive techniques and materials. In cities with single-use zoning, this means that prices for single family homes have to rise substantially before it becomes economical to replace them with apartments while many multifamily solutions are illegal. This is a problem in Boston, but not the biggest problem.

No, the real issue in Boston is money: according to the greater Boston Housing Report Card, building housing costs $274 a square foot, or $438,000 for a 1600 square foot unit. In order to cover all the costs, the monthly rent would have to be $3215. That’s 52 percent of the median income. The report says “Under current conditions it is virtually impossible for supply to match demand.”

 The report actually broke down the costs: the biggest component is construction itself, which clocks in at around $159 of that $274 cost. Next comes land, at $41 per square foot, then site preparation at $29; developer fees $19 and $17 for financing. It also compares costs between 2004 and 2008 with those between 2011 and 2015, adjusted for inflation.

Development costs vs inflation

It’s rare that anything that reduces one of those costs doesn’t make up for it in another way. For example, the City has been conveying land it owns to non-profit affordable housing developers through the Department of Neighborhood Development, but often the reason the City ended up owning the property in the first place was because the land wasn’t valuable enough to hold onto and so the owner stopped paying taxes on it. For example, a project in South Boston to build a 100 percent affordable, car free building by the South Boston Community Development Corporation was delayed for over a year because the property was once the site of a dry cleaners and so it was contaminated, adding to site preparation costs.

While a project could theoretically add more units to maintain its bottom line while selling or renting them at a lower cost, it would run into both the technological issues discussed above, plus neighborhood opposition. The report does indicate that there are some economies of scale at high numbers of units, with a development of more than 150 units costs around $100 fewer per square foot than a development with less than 30 units.

Per unit costs

Similarly, building in outer neighborhoods, where land is somewhat cheaper, results both in reduced numbers of unit from more neighborhood opposition and more stringent character protecting regulations (even when the buildings prescribed by the regulations are nothing like the buildings in the neighborhood) and higher numbers of parking spaces.

Parking is perhaps the single biggest burden on construction costs that can be easily changed. According to Donald Shoup, parking in Boston costs between $75 a square foot for surface parking and $95 a square foot for underground parking. That’s between $25,000 and $31,000 a space. The median household income in Boston, mind, is $58,325. Unfortunately, the Greater Boston Housing Report Card doesn’t say if it includes parking construction costs in its calculation or not, but if it does, that’s a staggering amount of money that can be saved.

Consider a 15 unit building with 1,000 square foot apartments. At the average of $274 a square foot, it would cost $4.1 million to build. Assuming parking is all on the surface and the building has 1.5 spaces per unit, which is typical in Boston, that’s 22 parking spaces at a cost of $25,000 each — or $550,000, or 13.4 percent of the total cost. Not having that surface parking would open up another affect: less land would be required to build that structure. A 22 space parking lot would take up at least 7,260 square feet of land — a further savings of $297,660. Site preparation costs would be lower, as would financing costs. Perhaps as much as $1 million could be saved without parking.

The issue is not so much that Boston is a city for the rich as it is that Boston is a city that values free storage for cars over housing for people.

Pecci blames City Hall, but the real problem in Boston is NIMBYism. Between people sincerely concerned about neighborhood impact, people who oppose new housing because they stand to gain in home value appreciation and people who believe in their inalienable, God-given right to free on-street parking right in front of wherever they go, the result is onerous and burdensome regulations, excessive amounts of parking that increase traffic, rent and harms walkability and health, unsatisfying architecture and rents that allow almost no one to live without anxiety or foster creative, independent businesses.

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3 thoughts on “Developers are not ruining Boston, NIMBYs are

  1. Hey Matt,

    I definitely agree strongly (as always) with most of what you’ve written here, but I’m curious how you derived the number $3215 as the likely rent for a $438,000 unit. By my math the mortgage payment on a 30-year loan of that size at 4% is $2,091. Obviously insurance and maintenance is going to require that the rent be a little higher than that but certainly not 50% more, unless I’m missing something…

  2. Pingback: BLM demands affordable housing | Urban Liberty

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