Boston Housing Glut

[Patrick Kelly]

I've been seeing some posts about investing in the Boston market in properties that have negative cash flow. This sounds eerily similar to 2008. The Boston market is something that I have been growing cautious of. There are a few things that stick out to me as red flags the continued increase in price with a pretty low increase in wages. The numbers for price to income in recent years seems to be getting a little out of control. You can see some of this info in zillows data center. The big thing that sticks out to me is the amount of class A property that will hit the market in the coming years. Based on The Boston Foundations annual Report Card it is estimated that 4,375 units were permitted in 2015. That has followed a steady trend up over the past 6 years since 2009 when only 32 units were permitted. This is far above the previous high of 2,419 in 2006. Every week I seem to hear about the newest tallest tower in Boston with at least a few hundred units coming on the market. A lot of the units will be marketed to affluent people in their prime earner years and the retiring baby boomer population. I wonder if there are enough of them to absorb all of these units or if we are looking at an over production and we are going to see housing and rental prices drop due to an over supply.

[Francisco Feliz]

I agree with @Mike Hurney, @Patrick Kelly. Thank you for raising a market analysis discussion, as I find this to be an area that BP doesn't really have too strong content for. I believe that A properties are in a "glut," as you say, and I actually know for a fact that there are several of these luxury buildings that have multiple vacant units. I live in Downtown Boston, and I have seen all that activity over the past 4 years, and I have friends that live in some of those high-rent buildings. They are definitely not fully occupied. 

I think the way to think about this is that the luxury market is in a bubble all on its own. It truly is in uncharted territory. Yes, prices have gone up everywhere, but the supply has definitely been most pronounced and exaggerated in this market. The other thing to look for is the progression of rate hikes. As rates go up, perhaps the incremental high-end homebuyer will get priced out and may become a renter, but I still don't think that would be enough to fill the vacancies. As you point out, wages are simply not going up that much, and even GE can attest to that.

All that said, looking away from the A properties is likely to provide the most value. Up and coming areas in Boston and single families surrounding Boston limits should be areas that can provide a *start* for good long-term investments.