Addressing Boston’s Income Inequality

Boston is in the middle of a huge real estate boom right now. If you haven’t already, check out our main page for information on acquiring a real estate license. It’s about time you took the next step in furthering your career in realty, don’t you think? But even as the market heats up, a major problem continues to plague the city: income inequality. And we need to talk about it.

The hard truth about Boston’s income inequality

As I mentioned in my last article, Boston ranks number 1 in America for city income equality. Just to reiterate:

In 2014, households earning near the top of Boston’s income distribution made made $266,224. Conversely, households at the bottom of that distribution earned just $14,942.

Now, granted, Boston hosts one of the largest student populations of any city in the country. This is bound to impact the numbers. But the fact remains, that in Boston the rich are getting richer while the poor are getting poorer.

Studying the divide

Last year, the Brookings Institution released a study that showed these dramatic findings.

According to the study, Boston’s “95/20’’ ratio was 17.8 in 2014. In other words, an individual at the 95th percentile, bringing in $266,224 a year, earned nearly 18 times more than a person at the 20th percentile — earning $14,925.

One major effect of this inequality is a narrowing of the city’s tax base — which weakens the ability of the Bay State government to address low-income needs. On top of that, the price of goods and services for poor households inevitably rises.

So where does real estate factor in?

Another major impact of income inequality is a lack of affordable housing. As we’ve seen with the Millennium Tower, Boston real estate has a sharp focus on luxury condos, houses, and apartments for the city’s top earners. Meanwhile the city’s impoverished are being left in the dust.

Well, okay, not completely.

Committing to a better future

Thanks in large part to the city’s building boom, Boston permitted more units of affordable housing in 2015 than any other year on record, according to city Mayor Martin J. Walsh.

In 2015, the city issued building permits for 1,022 apartments and condos with rents deemed affordable to middle- and lower-income residents. In 20 years of record-keeping, this is the largest issuance to date. On top of that, the city approved another 1,443 units but have yet to receive issue building permits.

“We are committed to creating a Boston that anyone, at any income level, can afford to live in,” Walsh said in a statement.

More than half of the new apartments arose from a city policy that requires developers of new buildings to either include affordable units in their projects or fund them elsewhere in the city. That program — which the Walsh Administration revamped in December 2015 — has played a huge role in the surge in construction.

On top of that, the city collected $23 million in funds to subsidize lower-income apartments.

Clearly, Mayor Walsh and his team remain committed to tackling the problem of income inequality in the city. According to a statement released in 2016, they want to add 53,000 units citywide by 2030. If they can maintain their current pace of production, Boston will eventually hit its target of 6,500 new affordable units.

Still more work to do

But, even with the Mayor’s efforts, the situation remains far from solved. Some say it’s getting worse.

“While some are doing very well, there are still too many who are not,” said Kim Janey, senior project director at Massachusetts Advocates for Children.

Take a look below at this map created by geographic information systems provider Esri. Each blue dot represents two households with an annual income greater than $200,000, while each yellow dot represents two households with an annual income less than $25,000.

Boston faces a steep climb towards closing the gap in household incomes. Currently the city ranks first in worst income inequality.

Peeling back the layers

Even with seeming improvements in affordable housing, further examination demonstrates some deep-seated problems. For one, unemployment rates are substantially higher for black and Latino workers and for those with disabilities.

“If you look at the people in the bottom half, especially the people in the lowest fifth, you really see that they haven’t recovered much at all,” said Marc Draisen, executive director of the council, a regional planning organization that represents 101 cities and towns in the eastern part of the state.

According to the Metropolitan Area Planning Council report, the median income for black and Latino households is less than half the median income for white and Asian households. And while median incomes remained steady for white, Asian, and Latino households from five years ago, the median income declined for black households, from $45,800 to $43,600.

Moreover, the report showed that minorities, even wealthy ones, have a much harder time getting approved for mortgages than white people. An increasing share of older adults are continuing to work past age 65 and spend more than 30 percent of their income on a place to live.

“This housing cost burden issue is not only a huge social issue, it’s also a big problem for our economy,” said Draisen.

Moving forward, activists continue to try to shrink the gap in income equality. Critical to that, they say, is a 2018 ballot measure that would impose an additional tax on income over $1 million.

Buying vs. Renting in Boston

With Spring in full swing, the real estate market is getting especially busy — as it tends to do this time of year. With that, it’s time to ask the age-old question: are you better off renting or buying/owning in the Boston area?

Around March through June, demand tends to shoot up as leases end and prospective home owners and renters seek new digs. Fortunately for those people, Boston is in the middle of a major building boom right now. Nonetheless renting ain’t easy in Beantown. As we speak, major projects such as that at 35 Lomasney Way, Washington Village, South Station tower, and Bulfinch Crossing are getting underway or are expected to pick up their construction pace toward scheduled openings in 2018 or shortly after. All these developments will make for a rather spicy market as the city expands its residential options. So with that, let’s have a closer look at the market so we can answer this question: Rent or own?

Rental Market Blues

For the umpteenth time, the rental market in Boston continues to be considered one of the priciest in the nation — not exactly music to the ears of apartment hunters. The latest monthly report from real estate listings site Zumper offers us a glimpse into just how much apartments cost in the city. According to Zumper, Boston ranks third in the nation behind San Francisco and New York in the cost of renting a 1-BR apartment. Fortunately for prospective renters, the $2,250 median rent for a 1-BR represents a 1.3 percent drop from February; and the $2,600 median rent for a 2-BR was essentially unchanged from February into March, rising only 0.4 percent. So in that regard, renting continues to be about as good an option as last year. Here are a few developments for potential renters.

  • Piano Craft Guild

    There are still some vacancies in this 177-unit, six-story development. One-bedrooms start at $2,500; 2-BRs at $3,300; and 3-BRs at $4,600.

    Buying vs. Renting in Boston

  • Radian

The 240-unit, four-year-old development has at least a dozen studios, 1-BRs, and 2-BRs available. Studios start at $2,646; 1-BRs at $3,187; and 2-BRs at $3,846.

Buying vs. Renting in Boston

  • AVA Theater District

This 398-unit building was the largest apartment complex to open in Boston in 2015. There are still a number of units available now. Studios start at $2,550; 1-BRs at $2,539; and 2-BRs at $3,435.

Buying vs. Renting in Boston

While these options are especially enticing, and while Boston continues to undergo a nice facelift, there’s just too much demand, too little supply, and too many potential tenants able to pay the high monthly amounts. Consensus says that renting in greater Boston is a nightmare — and it’s less due to high costs and more due to just plain scarcity. It is this scarcity that has sent Boston rents soaring, and prospective tenants running.

Buy Me a River

Still with that in mind, does it mean that it’s better to buy? Here are some questions you might want to ask yourself before going forward with purchasing your shiny new home.

  • How much is permanence worth to you? Owning a home can give you peace of mind and more control—owners can pretty much do anything they want within the four walls of their homes. Renters, however, are generally at the mercy of their landlords.
  • How confident are you that you’ll stick around? Buying a home tends to be a long term investment. This is because buyers need to cover the closing costs they might incur and the investment loss that comes with putting their savings into a down payment on a home. Plus there’s that pesky broker’s commission if you decide to sell.
  • How confident are you about your future income? Any number of things can happen to homeowners. For renters, losing a job or income only affects the remainder of a lease; whereas home-owners can face all sorts of darker troubles like foreclosure, eviction, and bad credit.

Whatever your situation, it’s important to consider the long term — buying a home requires you to look into the future and ask a potentially maddening question: where do you see yourself in ten years, twenty years, thirty years? It’s a major commitment. And beyond that, if you’re looking to buy the median-priced condo in Boston Proper, you’ll need to pay a $100,000 down payment — which is out of the question for many — and if you’re looking to settle out in the suburbs, you’ll need to have savings of up to $50,000.

Obviously, then, the answer to our question isn’t so simple. It depends a whole heck of a lot on your income, your career trajectory, your savings, your willingness to commit to a long-term investment, your ability to pay those costly monthly rents, and a whole host of other variables. Whatever direction you choose, make sure you give it as much thought and consideration as possible. Because, as we’ve demonstrated, it ain’t easy living in Boston.