Thursday, August 04, 2005

Housing Boom for Whom?

The topic on Chris Lydon's new radio show, Open Source a couple of nights ago was the housing market and whether or not it was a bubble about to burst. I called in to say that, whether or not home prices were going to continue to rise over the next few years, a lot of folks had already been hit hard by the "boom," particularly poor folks who lived in traditionally working class neighborhoods.

When I first moved into Boston's Mission Hill neighborhood in 1991, no one wanted to live there. The street was lined with pretty, late 19th century row houses, and was convenient to two subway lines, Harvard Medical School, Boston's Museum of Fine Arts, and even Fenway Park, but units went unrented and homes unsold for months on end. The bursting of the 1980s housing bubble and a deep recession devastated working class neighborhoods like the Hill.

Crime was also an issue. The Charles Stuart murder case did as much to hurt the neighborhood as the recession. A couple of streets over was the Mission Main housing project, one of the biggest in Boston, infested with drugs and gangs. People got shot in our neighborhood. At that time, the city never paid much attention.

Still, it was a close knit community with people who had lived there for decades and had families. There were teachers on my street as well as social workers, community activists, plumbers, bike messengers, artists, musicians and students. Particularly in the summer time, neighbors lingered outside by each other's front stoops talking. I knew the names of most of my neighbors and something about their lives. They helped me when I was a poor and struggling college grad: got me a job, let me borrow their cars, took me to the hospital when I got really sick one time.

When I left Mission Hill in 1996 for the next community over (Jamaica Plain), a neighbor of mine was trying to sell her three family row house for around $140,000. I remember that the place was on the market for nearly a year before she finally got her price. Hell, I even thought of trying to buy it. At the time, though, I was still working with a non-profit community based organization, as I had for the previous five years, and my salary was too low for the mortgage.

Last year (2004) I bumped into a friend of mine from Mission Hill at the doctor's office. We got to talking - he still lives on the Hill - and he told me that a row house had recently sold on my street for $675,000. When I asked him if the place had gold fixtures, he assured me that this type of selling price was common for the neighborhood.

Things haven't gone badly for me since I moved off the Hill. I'm making about twice what I made in 1996. But there's simply no way I could afford to buy a place in that community today. We're talking about a place where people were getting shot in front of the crack house on the corner ten years ago. But this is how it's gone in Boston for pretty much the last 25 years. Housing prices have risen highest and fastest in working class neighborhoods. A lot of economists will tell you that the most important factor in where you end up on the earning scale is education. My Mission Hill friends who are teachers, though, would be the first to tell you that it would be impossible for them to buy into the neighborhood in which they now live. A lot of the other folks who were renters like me - the social workers, community activists, artists, etc... - they were priced out a long time ago.

In 2002, after seeing my rent double over the previous five or six years, I finally found a small one bedroom condo I could afford in one of Boston's bedroom communities. It stretched my finances and has doubled the time of my daily commute (two hours round trip). Even so, I wouldn't have been able to afford the place without going through Neighborhood Assistance Corporation of America, which has the best mortgage program in the country.

The place has appreciated greatly in value, but so has everything I want to buy. My fiancee and I are getting married in October and with two incomes, we hope we'll be able to afford a starter home. Neither of us wants to move. We both want to send our kids to public schools and be long term members of a stable community. There's one thing we know for sure, though: we can't stay in my little apartment if we want to have a family.

Both her parents and mine were able to buy their first home and start building equity long before we were, and this was in the "bad old days" of the 1970s. I think there's a tendency to think of the economy in the years leading up to the Reagan Administration as the darkness before the dawn. It's true that there was high inflation in energy prices and consumer goods. But there were also innovative housing programs, like the one that allowed my mother, her partner and me to move into a limited-equity housing cooperative on Massachusetts' north shore. We could only afford to rent, but as early members of the co-op, we got a "share" in the community that increased in value and helped us buy a single family years later.

My fiancee's parents could buy in the 1970s because high inflation was at least partially driven by high wages and yielded high savings rates. Yes, interest rates meant that you could buy less house, but home prices only went up very gradually. So, with double digit COLAs in the workplace and double digit savings rates at the bank, her parents were able to come up with a 20% down payment on a house, which made the mortgage affordable. It also stabilized the community, because they were buying in for the long haul, and the market, because they immediately had equity in their home.

Finally, as a homeowner, I've seen a different, but also troubling side of the boom: property tax sticker shock.

In the late 1970s and early 1980s, there was a nationwide rebellion over runaway property taxes. The problem then was that the rates were just too high, and people were being forced out of their homes because they couldn't afford to pay the levies. In 1980, in fact, Massachusetts passed Proposition 2 1/2, a ballot initiative that capped property tax rates statewide.

Today, though, elderly residents, the disabled and others on a fixed income are again being driven from their homes in my community by property tax bills that rise 20% to 60% in only a few years. While Prop 2 1/2 caps tax RATES, it does nothing about ASSESSMENTS. In my neighborhood, property values have gone up as much as 50% in the last three years. Moreover, the city is more reliant than ever on property tax revenues, because there is less aid coming from the state. Assessments are made more frequently, and new housing developments okayed are often luxury condos that will generate high taxes, but attract residents who will not use city services like schools.

Is it a bubble? Who knows? The advice that realtors give is to think of a house as a home, to invest in communities and to buy into a neighborhood for 10 or 15 years. This is good advicce. Unfortunately, the boom seems to have priced out a lot of people who want to take it.