New England Public Policy Center Working Paper No. 06-1
by Alicia Sasser, Bo Zhao, and Darcy Rollins (with an overview by Robert Tannenwald)

Although housing costs in greater Boston and elsewhere around the region have leveled off, affordable housing is still high on the public policy agenda in every New England state. A growing chorus of employers and policymakers are warning that the region's high cost of housing is now undermining its ability to attract and retain workers and businesses. This paper presents a thorough, region-wide analysis of the housing affordability problem in New England. We construct three affordability indicators to examine differences in the cost of housing across socioeconomic, demographic, and occupational groups, for every New England state and for the region's principal metropolitan areas.

We find that owner-occupied housing is often not affordable, particularly in southern New England, and the problem is getting worse over time. In contrast, New England's rental housing is expensive relative to the rest of the nation, but incomes are high enough that rentals are still affordable to most New Englanders. However, the lack of affordable owner-occupied housing is a problem for both middle-income and very low-income households. Households headed by young professionals can afford to purchase median homes in New England, but not as easily as they used to, and not as easily as in most rival metropolitan areas. At the same time, the very low-income are being squeezed by falling household incomes coupled with rapidly appreciating prices for houses at the lower end of the price distribution. Finally, fewer rental and owner-occupied units are actually available to the very low-income than in the past because households with higher incomes are moving down the housing distribution in order to secure shelter. We also draw on the existing literature to analyze what might have caused the region's affordability problem to worsen over the last decade. While many factors may have contributed in small ways, easier access to mortgage credit and strict regulations on building are likely to be the two most important reasons behind the increase.

Finally, we summarize the strategies New England governments have adopted to address the problem. These policies attempt either to increase the ability of households to rent or purchase a home or to increase the supply of affordable units. Supply-side strategies are likely to be particularly critical in improving housing affordability given the sluggish growth in the region's housing stock over the past decade.

This paper was updated with 2005 data in January 2007.

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