Sustaining the Mass Economy: Housing Costs, Population Dynamics, and Employment Barry Bluestone...

Sustaining the Mass Economy: Housing Costs, Population Dynamics, and Employment

Barry Bluestone

Director, Center for Urban and Regional Policy Northeastern University

May 2006

Key Questions

Are the recent discouraging trends in Massachusetts employment and population related to the cost of housing?

Why should current homeowners in Massachusetts who have enjoyed double-digit appreciation in the value of their homes support an increase in housing supply?

Presentation Outline

Employment Trends Population Dynamics Housing Prices Cost of Living across U.S. Metro Areas Impact of Housing Prices on Employment Impact of Housing Prices on Migration Housing Price/Vacancy Relationship

Employment Trend – U.S.

United States

118.8117.7118.4

120.2

123.1124.9

126.7

129.6131.5

133.4

136.9 136.9 136.5137.7

139.3141.4

115

120

125

130

135

140

145

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

in M

illio

ns

U.S. Bureau of Labor Statistics

Employment Trend - Massachusetts

M assachusetts

3044

2875

2795 28152869

29502994

3083

31513200

3279

3371

3270

32113165

3190

2700

2800

2900

3000

3100

3200

3300

3400

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

in T

ho

us

an

ds


Employment Growth (2000-2006) Massachusetts vs. U.S.

-30%

-20%

-10%

0%

10%

20%

30%C

onst

ruct

ion

Hig

h Te

chM

fg

Fina

ncia

lS

ervi

ces

Com

pute

rS

ervi

ces

Edu

catio

nS

ervi

ces

Hea

lth C

are

Per

cent

age

Cha

nge

Mass

U.S.


Massachusetts Population

5737.0

6016.4

6349.1 6394.8 6411.6 6417.6 6407.4 6398.7

5000.0

5200.0

5400.0

5600.0

5800.0

6000.0

6200.0

6400.0

6600.0

1980 1990 2000 2001 2002 2003 2004 2005

Popu

latio

n (in

thou

sand

s)

U.S. Bureau of the Census

Massachusetts Net Migration (2000-2005)

33,292 33,347 31,785 29,041 26,515

-22,892

-39,506-48,514

-61,980 -60,053-70,000

-50,000

-30,000

-10,000

10,000

30,000

50,000

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Foreign Immigration Internal Migration

U.S. Census Bureau

Population Change by Age Cohort (2000-2004)

-10%

-5%

0%

5%

10%

15%

20%

25%

Under 5 5 to 19 20-24 25-34 35-54 55-64 65+

Age Cohort

Per

cent

age

Cha

nge

Mass

U.S.


Population Change by Age Cohort (2000-2004)

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%U

nd

er

5

5 t

o 1

9

20

-24

25

-34

35

-54

55

-64

65

+

Age Cohort

Perc

en

tag

e C

han

ge

Mass

N.Carolina


Where did they go?

TX

CA

MT

AZ

ID

NV

NM

CO

IL

OR

UT

KS

WY

IA

SD

NE

MN

ND

FL

OK

WI

MO

AL

WA

GA

AR

LA

MI

IN

NY

PA

NC

MS

TN

KYVA

OH

SC

ME

WV

MI VTNH

MD

NJ

MA

CT

DE

RI

Net Migration* Betweeen Massachusetts and Competitor States1990-2002

*Thicker line represents more migration

State Net Migration from State

Florida -99,082 New Hampshire -78,201 California -23,978 Arizona -11,033 North Carolina -8,983 Washington -4,516

$169$159

$152 $146 $148 $150 $154$161

$168

$186

$210

$245

$273

$313

$343

$376

$165 $168

$100

$150

$200

$250

$300

$350

$400

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

(in

$th

ou

san

ds)

Greater Boston Median Single Family Home Price 1987-2004

Source: The Warren Group Publications

2005Class A Apartment Rents

$1

,95

3

$1

,82

5

$1

,74

5

$1

,68

6

$1

,67

7

$1

,63

2

$1

,57

9

$1

,52

6

$1

,51

7

$1

,46

6

$1

,43

9

$1

,32

5

$1

,31

6

$1

,24

1

$1

,15

5

$1

,11

1

$1

,04

3

$1

,01

8

$1

,01

2

$9

87

$0

$500

$1,000

$1,500

$2,000

$2,500

Source: Forbes Magazine

Calculations based on 900 Sq.Ft. Apartment

Housing Costs - 4 Person Family

$1,539$1,437

$1,313 $1,266$1,187

$1,124

$929$847 $834 $805 $779

$673

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Mo

nth

ly C

ost

s

Source: Economic Policy Institute, “Family Budget Calculator, 2005”

Annual Cost of Living: 4 Person Household

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

1 2 3 4 5 6 7 8 9 10

Cost of Living Decile

De

cil

e A

ve

rag

e C

os

t o

f

Liv

ing

Boston$64,656


Universe: 304 U.S. Metro Areas

Boston Family Budget – 4 Persons

Housing Costs: 7th Highest MSA Child Care: 7th Highest MSA Health Care: 7th Highest MSA Personal Care: 6th Highest MSA Fed/State Tax: 2nd Highest MSA

Total Cost: 1st Highest MSA

Economic Policy Institute, Family Budget Calculator, 2005

Among 304 U.S. Metropolitan Areas

Top Decile: Metro Area Cost of Living

Boston $ 64,656Washington (D.C. portion) $ 61,440Nassau-Suffolk, NY $ 60,780 Stamford-Norwalk, CN $ 60,720 Lawrence (Mass. portion) $ 59,280 New York, NY $ 58,656 Barnstable-Yarmouth, MA $ 58,236 San Francisco, CA $ 57,624 Worcester (Mass. portion) $ 55,704Springfield, MA $ 55,320Minneapolis-St. Paul, MN $ 54,948 Nashua, NH $ 54,852 Santa Cruz-Watsonville, CA $ 53,808Oakland, CA $ 53,412 San Jose, CA $ 52,800 Pittsfield, MA $ 52,632 Rochester, MN $ 51,288

Monmouth-Ocean, NJ $ 50,736San Diego, CA $ 50,088Newark, NJ $ 49,992New Haven-Meriden, CN $ 49,848Honolulu, HI $ 49,824Philadelphia (Pa. portion) $

49,716Boulder-Longmont, CO $ 49,596Bridgeport, CN $ 49,272Manchester, NH $

49,152Santa Rosa, CA $ 48,924Albany-Schenectady-Troy, NY $ 48,900Hartford, CN $ 48,684Trenton, NJ $ 48,576Rochester, NY $ 48,540

Economic Policy Institute: Family Budget Calculator


A Tale of Two CitiesBasic Budget2 Parents, 2 Children

Boston

Monthly Housing $1,266

Monthly Food $ 587

Monthly Child Care $1,298

Monthly Transportation $ 321

Monthly Health Care $ 592

Monthly Other Necessity $ 500

Monthly Taxes $ 824

Monthly Total $5,388

Annual Total $64,656

Raleigh-Durham-Chapel Hill

Monthly Housing $ 779

Monthly Food $ 587

Monthly Child Care $ 866

Monthly Transportation $ 358

Monthly Health Care $ 368

Monthly Other Necessity $ 369

Monthly Taxes $ 350

Monthly Total $3,677

Annual Total $44,124

A Tale of Two Cities


Regional Average Monthly Housing Costs (2004)

$892.60

$708.46 $692.82$617.23 $616.29 $566.14 $583.67

$720.00

$914.63

-$100

$100

$300

$500

$700

$900

$1,100

$1,300

Hou

sing

Cos

ts

Boston ($1,266)


Employment Growth (%) (2000-2004)

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

1 2 3 4 5 6 7 8 9 10

Housing Price Decile

Per

cent

Cha

nge

Low Price High Price

Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of Labor Statistics


0.95%

2.91%

2.29%

0.86%

1.53%

0.68%

-0.68%

0.12%

-0.62%

1.49%


-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

1 2 3 4 5 6 7 8 9 10

Housing Price Decile

Per

cent

Cha

nge

Boston MSA (-4.9%)



0.20

0.10

0.00

-0.10

-0.20

$1,600$1,400$1,200$1,000$800$600$400

Quadratic

Observed

Monthly Housing Cost

Employment Change (%) (2000-2004)

Boston MSA

%∆Emp(2000-2004) =

-.1466 +.0000396 Housing Cost (4.07) -2.291E-007 Housing Cost SQ (4.04)

N = 245 Adj. R Square = .056


-1%

0%

1%

2%

3%

1 2 3 4 5 6 7 8 9 10


Per

cent

Cha

nge

Low Cost High Cost


-0.21%

0.93%

-0.02%

0.84%1.06%

0.50%

1.09%

1.98%

0.62%

2.53%


Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census

Internal Net Migration (%) (2000-2004)

-0.8

1%

-1.0

6%

0.1

8%

0.2

7%

0.9

3%

0.3

6%

2.7

2%

3.0

5%

2.4

5%

-2.2

5%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

1 2 3 4 5 6 7 8 9 10

Housing Cost Decile

Decil

e P

erc

en

t

Boston MSA (-5.2%)


0.1500

0.1000

0.0500

0.0000

-0.0500

-0.1000

-0.1500

$1,600$1,400$1,200$1,000$800$600$400

Monthly Housing Costs

Quadratic

Observed

Internal Migration (% Change)



Boston MSA

%∆Internal Migration =

- .1541 + .00043 Housing Costs (7.03) - 2.658E-007 Housing Costs SQ (7.39)

N = 304 Adj. R Square = .153


0.1500

0.1000

0.0500

0.0000

-0.0500

-0.1000

-0.1500

$1,600$1,400$1,200$1,000$800$600$400

Monthly Housing Costs

Quadratic

Observed




Boston MSA

%∆Internal Migration =

- .146 + .000399 Housing Costs (7.03) - 2.475E-007 Housing Costs SQ (7.39)

N = 304 Adj. R Square = .153

San FranciscoStamford-NorwalkSan JoseBostonOaklandNassau-Suffolk

Simulation ResultsThe Impact of Employment Growth and Housing

Prices on Net Internal Migration(Northeastern States)


% Employment Growth $600 $1,266

+5.0% + 2.27% - 0.77%

+2.5% + 1.30% - 1.74%

-4.85% - 1.54% - 4.58%

Simulation based onNortheast RegressionThe -4.85% employment loss and the $1,266 monthly housing price refer to the values for Greater Boston, the former from the U.S. Bureau of Labor Statistics, the latter from the EPI Family Budget Calculator (4-Person Family with 2 Children)

Internal Net Migration (2000-2004)

0.3

5%

-0.0

3%

0.5

9%

0.4

8% 1.2

3% 1.9

5%

1.5

2%

1.5

6%

0.1

1%

-2.1

2%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

1 2 3 4 5 6 7 8 9 10


Decil

e P

erc

en

t

Economic Policy Institute, “Family Budget Calculator, 2005”; U.S. Bureau of the Census


And, finally, what is the relationship between housing prices and housing supply?

Hou

sing

Pric

e A

ppre

ciat

ion

(199

5-20

05)

Housing Price Appreciation vs. Vacancy Rates

Office of Federal Housing Enterprise Oversight; U.S. Census Bureau


350.00

300.00

250.00

200.00

150.00

100.00

50.00

6.005.004.003.002.001.000.00

Average Vacancy Rate (2002-2004)

Cubic

Observed

Housing Price Appreciation vs. Vacancy Rates

Office of Federal Housing Enterprise Oversight; U.S. Census Bureau


Hou

sing

Pric

e A

ppre

ciat

ion

(199

5-20

05)

Housing Price Decline – Metro Areas

Peak Qtr. HPI IndexTrough Qtr.

HPI Index %CHG Recovery

Gary, IN 1981:I 63.42 1984:III 56.68 -10.6% 7 years

BOSTON, MA 1988:IV 112.95 1992:II 99.2 -12.2% 9 years

Duluth, MN 1988:II 114.18 1991:III 99.27 -13.1% 11 years

WORCESTER, MA 1989:IV 117.26 1995:I 100 -14.7% 9 years

SPRINGFIELD, MA 1989:iv 117.43 1995:i 100 -14.8% 11 years

Honolulu, HI 1993:II 101.55 1999:III 84.69 -16.6% 9 years

Detroit, MI 1981:IV 61.29 1982:IV 49.69 -18.9% 5 years

Hartford, CN 1988:III 126.4 1995:I 100 -20.9% 13 years

Los Angeles, CA 1990:III 127.16 1996:III 99.7 -21.6% 12 years

Lafayette, LA 1982:iii 115.27 1988:IV 65.53 -43.2% 15 years

U.S. Office of Federal Housing Enterprise Oversight

Boston MSA Housing Price Index

90

95

100

105

110

115

1 3 5 7 9 11 13 15 17 19 21 23 25 27

1988:2nd Q - 1994:4th Q

HP

I - 12.2%

U.S. Office of Federal Housing Enterprise Oversight

1988:4th Q – 1992:2nd Q

Conclusions

The high price of housing is indeed a significant factor in the decline in employment and population in Massachusetts

The high cost of living beyond housing – including health care, day care, and taxes – contributes to the decline in employment and population

An increase in housing supply could “inoculate” Massachusetts homeowners against the possibility of a long-term precipitous decline in housing values

General Policy Implications

INCREASING the housing stock, particularly starter homes for young families is critical to the future economic development and prosperity of the Commonwealth

REDUCING the high cost of health care, day care, and reduce the tax burden (particularly the residential property tax which contributes to housing costs) is important as well … along with assuring that the quality of local public services encourages families to stay in the Commonwealth despite its relatively high cost

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