Tuesday, January 30, 2007

Bribing Beantown

In an desperate attempt to persuade young students and other residents to stay in Massachusetts rather than seek opportunities in some of the country’s growing and more affordable areas, Massachusetts state legislator Brian A. Joyce recently filled a new piece of legislation that would offer $10,000 for a down payment on a house or condo to those who would stay for at least five years.

The parameters are fairly simple, a recipient must have graduated from an accredited institution (college, vocational school, etc.), not make more than 135% of the community’s median income, and lastly, if they don’t stay at least five years, they must pay back the $10,000 with interest.

This seems like a fairly simple plan until you start putting it in the context of the current housing climate in the bay state.

Aside from being another example of government (this time local government) trying to mitigate affordability issues by essentially jumping in the fray of ridiculous behavior (i.e. doing anything they can to help first time buyers stretch to attain homes at absurdly inflated values), the plan itself simply wont add-up given the tremendous run-up in home prices that Boston’s suburbs have experienced in the last decade.

Given that many (if not most) of Boston’s suburban and metro areas have median household incomes in the range of $60K - $80K and that an extra 35% of income exempts you from the program, the maximum cut off point from the program would be roughly $100K of household income with most areas actually cutting off well below in the $80K - $85K range.

As anyone who has lived in Boston for the last decade can tell you, a person needs to make quite a bit more than $85K or even $100K to afford even the most average of starter home.

Take any town within the route 95 beltway and you will find that virtually every single family home, even the typical 1200 – 1500 square foot cape or ranch with no bells or whistles are valued in the range of $450 - $550K.

Single family homes under $400K are generally anomaly’s with some fairly significant defect preventing them from “comping” with the norm.

Keep in mind that even though this is a state initiative, there is no doubt that it is really directed toward the Boston suburban and metro area with its tech industry and plentiful numbers of newly graduated students.

Even if this program is enacted, legislators will find that its effects will fall flat.

Possibly it will help some students afford some of the cheaper condos on the outskirts of town but in general most students are aware that the Boston area is significantly overpriced and that other areas of the country are experiencing faster growth, providing more opportunities and are significantly more affordable.

Additionally, Boston’s problems with affordability are now much greater than simply holding on to individual college graduates.

As we have seen many times recently, businesses are relocating due to the significant cost of operating a business in the bay state as well as the impact that low affordability and high cost of living has on employees.

The writing is on the wall. Boston’s home prices have to come down to meet some reasonable balance with what incomes in the area can afford.

The spending binge is now over and soon the state will have a whole assortment of new issues to contend with as it’s citizens struggle to make sense of the significant downward home price adjustment.


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