Abundance 2 — Housing

I want to thank everyone who responded to my first post on “Abundance.” People made thoughtful comments and also pointed me to some helpful resources. In this post, I share how that exchange has helped clarify my thinking.

The “Abundance” conversation is very broad — it can go in too many directions, so it’s important to discuss it within a specific context. This post focuses on housing in Massachusetts. (For more of my thinking on housing issues, listen to this 38 minute podcast or browse my housing outline.)

My Housing Big Picture

The following narrative distills my previous thinking:

• Many renters and some homeowners are suffering a price squeeze. Too many young people are leaving the state. We need to build more housing in Massachusetts.
• The numbers show that only a small fraction of our housing need can be met with subsidized housing, so we are dependent on market rate developers.
• Market rate housing development capital is mobile. Potential investors in housing production have options — they can build in Massachusetts, or Tennessee, or France.
• Zoning restrictions, building codes, and other regulations make Massachusetts an expensive and risky place to build. If we want to attract housing development, we need to make Massachusetts a place were it is easier to build. From an affordability and an environmental perspective, our best path is to build apartment buildings in areas well served by public transportation and/or near jobs. So, my affirmative agenda is to streamline apartment production.
• True, this doesn’t the offer the immediate relief so many are asking for: it took us 100 years of restrictive zoning to get to where we are and even if we get everything right legislatively over the next five years, it will take us decades to rebalance supply and demand.
• In the short run, we want to do all we can to help people stabilize their housing situation: The recent Affordable Homes Act includes important positive measures for tenants. Also, I have made housing aid (RAFT, MRVP) a priority in my budget requests and we have substantially increased funding through the past few budget cycles. I am also hopeful that we will shortly pass legislation to limit the burden of broker fees on tenants. As we work to help people in the short run, we need to be cautious about measures that could harm housing production.

Adjustments to My Housing Big Picture

Here are some gaps and weaknesses in my narrative that the response to my last post have helped me appreciate:

First, the rise in housing prices may primarily reflect supply and demand factors that we cannot control.

Supply is a function of many cost variables, some of which are nationally or internationally determined. Our local regulations may make only a small relative difference in the supply curve. Conversely, increased personal income available for expenditure on housing may be raising the demand curve and that may be the primary cause of rising prices. How these factors interact to drive housing prices up is a subject of debate among economists. The best economic evidence that our focus on local supply constraints may be myopic is that housing prices have been rising even in markets where regulations are limited. See Supply Constraints do not Explain House Price and Quantity Growth Across U.S. Cities, National Bureau of Economic Research, March 2025. The local observation that there are many units permitted but unbuilt in Greater Boston tends to support the idea that zoning constraints are certainly not the only factor and possibly not even the biggest factor contributing to high prices.

We should humbly admit that housing prices depend on factors outside our legislative control, but that should not dissuade us from working on the factors that we can control. There are lots of reasons to create more opportunities to build apartment buildings in the suburbs: housing for seniors wanting to downsize, housing with a lower carbon footprint, housing for local workers, housing near transit, etc. And there are lots of reasons to believe we can streamline our regulations to lower housing production costs. For example, subsidized housing units, which are subject to even more rules and requirements than market rate units, are costing about $800 to $900 thousand to build these days in Massachusetts as compared to $500 to $600 thousand per market rate unit. Progress on zoning and other regulations may not result in regional reductions in housing prices, but we can create some more opportunities for people to be housed and redress a history of intentional policies of exclusion.

Second, it is fair to criticize the Abundance argument generally as “neo-liberal.”

“Neo-liberal” has became a pejorative term for blind faith in the power of markets to deliver desirable outcomes. In the housing context, it is indeed too simplistic to suggest that if we just get out of the way, the market will build the housing we need. Serkins and Sitaraman make an argument for a Post -Neoliberal Housing Policy in a very recent paper. There are lot of ideas in the paper, which is a good survey, but the gist is that we should not only loosen regulations, but use regulations to affirmatively drive the housing construction we want.

How much we can accelerate production remains to be seen, but our Massachusetts approach to housing already involves much more than getting out of the way. Affirmative measures need to be part of how I talk about the issue. For example, zoning can be a positive force for increasing density. We can standardize construction models to streamline permits. We can encourage year-round, offsite manufacture of housing components. Some ideas in this spirit appear in our recent Affordable Homes Act and more appear in the recent report of the Governor’s Commission on Unlocking Housing Production.

An additional concern with a simplistic market approach is the issue of affordability. With construction costs high, new housing units are only affordable to people with higher incomes. For lower income renters, new market housing production only offers indirect help as tenants move up, vacating older less expensive units — a process referred to as “filtering” or pejoratively as “trickle-down.”

Massachusetts does better than many states at providing government support for the lowest income renters, those meeting the definition of “Extremely Low Income.” In fact, in a recent presentation at the American Community Survey Data Users Conference, I’ve argued that we are doing much better than the survey data shows for the lowest income renters (see my panel talk starting at 1:18:40).

However, where we are failing is for the next tier up — the “Very Low Income,” the working poor. Our subsidized housing construction programs necessarily rely on federal tax credits, but these credits channel new affordable units to people making 50% or more of area median income, above the working poor level. Right now, all we can do for the working poor is trickle-down; available federal programs do not give us a good way to target relief to them. This is a central continuing concern for me. It makes an argument for being proactive about driving new unsubsidized production at the lowest possible price point — not a new idea in Massachusetts, but one that needs consistently to be part of how I talk about the issue.

Third, we need to keep an eye on oligopoly power in the housing market.

There is no question that national investors have been buying housing in multiple markets. They have no allegiance to local well-being and are entirely profit driven. In some instances, they displace existing tenants through larger rent increases. One of the ironies is that over-regulation of housing favors big property owners — small landlords cannot afford to hire lawyers to handle the regulatory complexity.

However, I’m not convinced that outside investors are an important part of our housing price challenge in Massachusetts. The economics are complicated. There is a standard metric of when market power is too concentrated, the HHI Index. It is not obvious that the HHI framework is a good one for the housing market, but when one applies that framework to the data from studies of institutional investment in local real estate, there is no market in which concentration approaches oligopolistic levels. In Atlanta, the most concentrated market in the country, we can use Figure 6 in this GAO report to put a likely upper bound of 625 on the HHI there — well below the danger level of 1000. See also this similar critique of the market concentration argument; or apply HHI computations to this article lamenting concentration among home builders in Dallas (not close to danger levels). While concentration may not be a problem yet, we definitely need to watch for collusion through rental marketing platforms, an issue that has begun to surface in Massachusetts.

Summary

So, thanks again to all who helped me clarify my thinking on the housing big picture. I remain centrally concerned to remove barriers to apartment production, but we also need to emphasize our proactive measures to accelerate housing production. Coming back to the top level Abundance argument, I think we have to have the same kind of conversation about our strategy in other areas — there are many areas where people (inside government and outside government) feel their productivity diminished by regulatory complexity. In each of these areas, we need to contextualize the general “neo-liberal” deregulation argument, recognizing its partial validity, but also its incompleteness.

This is a continuing conversation and I very much welcome more discussion.