The Metropolitan Area Planning Council (MAPC) has been looking into our local housing economy. Their most recent report explains how Massachusetts got into the real estate mess that we and our clients have been wrestling with this year.
What is the problem? Not enough housing!
Why is there not enough housing?
There has been a limited housing stock throughout my (now 30+ year) career. However, it has gotten significantly worse since the housing recession of 2008-2011.
Lower-cost housing stock is being bought by speculative investors at an accelerated rate. Those are the people and companies who buy properties to rehab and flip for profit, or rehab to rent at drastically increased prices.
Not surprisingly, lower-cost housing is found in parts of Boston area towns and cities that house economically disadvantaged people. Communities where immigrants and BIPOC renters are living are hit hardest by this activity.
According to the MAPC report, one out of five house purchases are going to speculative investors. This has been making headlines all week, as it should.
Gentrification has been with us, in metro Boston, throughout my career. However, the data shows that since 2008, it has escalated.
Everyone is affected.
Moderate and low income renters:
Communities are disrupted when speculators purchase and drive up prices. Low- and moderate-income areas run out of low and moderate rental properties. People lose their homes when the properties are sold to be flipped. Those people often cannot stay together as a community because the areas where they were living are being gentrified. The availability of affordable housing gets worse and worse as properties are taken out of market for moderate income folk after they are rehabbed.
Middle income buyers:
When speculative investors compete with people who are trying to buy a place to live, those “find a place to live” buyers are at a disadvantage. One third to one half of all investors are buying properties without a mortgage. The typical “find a place to live” buyer needs to borrow money to buy their home. As long as sellers are encouraged to choose all-cash offers over offers with mortgage contingencies, the typical home buyer — who intends to live in the community – is disadvantaged.
What are the solutions?
A transfer fee
A transfer fee would be charged to sellers when they sell the property. A transfer fee is unlikely to be a hardship for most “found a place to live” sellers, since housing prices have increased substantially in their time of ownership. For people who live in a home for ten, or twenty or forty years, it is a one-time charge. However, it would be a drag on the profit of people and companies who are buying property to flip.
Putting a drag on speculators is good for homebuyers. So, we at 4 Buyers Real Estate are all for it.
The funds collected by the transfer fee would go towards an affordable housing fund, to be used by the town or city. If transfer fees are allowed, towns and cities can help “find a place to live” buyers and also have funds to help moderate and low-income renters to stay in their towns.
Transfer fees would be the choice of a municipality – not a Commonwealth requirement. Currently, there are four-year-old requests from towns and cities to allow these transfer fees that have yet to be approved by the State Legislature in Massachusetts.
Rent stabilization is a municipally based cap on rental prices. By law, towns and cities need Commonwealth approval to establish a rent stabilization program. Any program must – by Federal law — show that owners can still make a fair profit from their investment. However, the extent of the profit is capped, so that tenants cannot be displaced by sudden rent increases.
Every program, thus far in America, has exemptions for what properties can be rent regulated. Frequently, owner-occupied two-family and three-family houses are not regulated, nor are newly constructed properties for some number of years.
Rent stabilization programs would be the choice of a municipality – not a Commonwealth requirement. Currently, there are multiple requests (called “home rule petitions) from towns and cities in front of the Legislature. They yet to be approved.
The MAPC webinar is found at this link. Any housing nerds reading this should listen to this presentation!
From the link:
“MAPC has released research examining the prevalence, characteristics, and spatial patterns of residential property speculation in Greater Boston. Our research finds that low-income urban communities of color experience the highest rates of speculative investor activity. Investors are often able to buy properties at a discount using cash, and they are also more likely than non-investors to flip their properties and to make a significantly higher profit on flipped properties than non-investors. Our November 30 webinar featured a presentation of this research and a panel discussion.”