Property Management Archives – Boston Appraisal Services

Is Rent Control Making a Comeback in Boston?

Boston’s real estate market is booming. This spring, sale prices for condominiums and single-family homes in the city reached all-time highs while its median rent is among the highest in the country.

Unsurprisingly, both long-time and would-be residents are being priced out of the city. As a result, some affected parties are already pushing for the reintroduction of rent control — Massachusetts outlawed this policy statewide in 1994, but the housing crisis has encouraged revisiting this practice.

But is rent control the solution to the current housing shortage in Boston?

Boston’s Housing Market Is Struggling to Keep Up With Growing Demand

According to a study released by the National Low Income Housing Coalition, the typical Massachusetts renter would need to earn $33.81 per hour to be able to afford a 2-bedroom apartment. Meanwhile, the average renter’s hourly wage stands at $20.72.

This disparity shows that Massachusetts, especially Boston, is facing an undeniable shortage of affordable housing, with many residents being priced out of the market. A controversial study estimates that 43 evictions take place daily in Massachusetts. Although this number seems grossly inflated, affordability remains a concern for the state’s current and potential inhabitants. Homelessness is on the rise statewide, partly due to the increase in housing prices.

Interestingly, this scarcity of affordable housing hasn’t deterred new residents from flooding Massachusetts’s real estate industry. The State is currently struggling to keep pace with the intense demand for new apartments, with Boston pulling in more people than it can accommodate. That’s because the city has a dynamic job market and also attracts a large number of students, many of whom want to remain after graduating, contributing to the escalating rent. Besides, some blame the growth of the “internet-based service firms” (IBSFs), like Airbnb, for the surge in rent prices and unit shortage.

The Boston City Council will be up for election in November 2019. A result of the housing shortage, expected rent hikes have provoked increasing unrest among residents, and there is a passionate debate over reinstating rent control.

Despite being voted out by a statewide ballot initiative in 2004, rent control was a popular measure in the places where it was enforced: Boston, Cambridge, and Brookline. Gentrification is now reaching into former working-class neighborhoods like the South End and Jamaica Plains. A bill proposing restrictions on the eviction of seniors without just cause is already underway.

Alternative Solutions to Rent Control

Rent control is not a straightforward solution. Its opponents recall many of the issues that lead to its elimination 25 years ago. Without the incentive to maintain their property, landlords would defer maintenance indefinitely. Not only would buildings themselves decrease in value, but entire neighborhoods could suffer from neglect.

Due to the perceived limited return on investment, builders would shy away from constructing new multi-family buildings. Additionally, tenants would hold on to their units to keep the favorable rates, further reducing the number of apartments available to newcomers.

Thankfully, after years of unbridled growth, Boston’s real estate market is showing signs of regulating itself. Listing numbers are increasing, and the property prices are now growing at a much slower pace. Foreign investments, one of the driving forces behind Boston’s real estate market explosion, have also stagnated.

Apart from market self-regulation, there are alternatives to rent control to make housing more affordable. Investments in the transit system could improve Boston’s dreaded commute, attracting residents further out of the city. Relaxing the notoriously tight building regulations would also be an incentive for investors to create more affordable housing rather than focusing on high-end units. Finally, urban residents are changing their lifestyle and switching from single-family homes to the less expensive micro-units and co-living.

Market Self Regulation

Boston’s real estate market is finally showing evidence of auto-regulation, so rent control and its associated issues are not an end-all solution. On its own, rent control can’t solve a problem as complex as housing affordability, and it’s worth taking the time to explore other options.

What’s your take on rent control?

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Boston’s Proposed Just Cause Eviction Legislation: Facts and Effects

Since 2015, legislative officials of Boston have been developing legislation concerning residential evictions in the city. Even though that legislation has failed to advance in the Massachusetts legislature, its proponents continue to work on a revised version for 2019. Residential real estate values are likely to be affected whether or not the bill is ultimately enacted into law.

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Economic Trends Affecting New England Real Estate in 2019

The demand for all types of real estate in New England reflects region-wide economic factors. While the national economy influences geographical real estate values, some 2019 trends unique to New England are especially important to buyers and investors. These trends include labor characteristics, financial considerations, and population behavior.

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Short-Term Rentals, New Regulations, and Appraisal Considerations

The digital age has disrupted many traditional businesses. Ridesharing has upset the taxi business; online marketplaces have, to a large extent, replaced newspaper classified ads. Residential real estate markets are flexing to accommodate fast-growing short-term rental companies such as Airbnb and VRBO. Owner-occupied homes now have the potential for limited rentals; houses purchased for investment may have alternative rental opportunities. Well-informed and competent real estate appraisers account for this new rental model in their residential appraisals.

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Fixed and Variable Expenses in the Income Approach

The appraisal process includes the income approach to estimate the value of a property that an investor would ideally purchase for its annual income. The income approach assumes a relationship between a property’s average net income and the price an average investor would pay for the property. The first step to defining that relationship is estimating the amount of net income that would accrue to a property in a typical operating year after all expenses to produce that income are deducted. The resulting estimate is shown in a stabilized or reconstructed operating statement for the subject property.

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The Cost Approach: Examining an Important yet Sometimes Irrelevant Appraisal Method

It’s standard procedure for most commercial lenders to request all three approaches to value—sales comparison approach, income approach, and cost approach—be undertaken during an appraisal. Usually, there is a stipulation that an approach may be excluded from the valuation if such an approach is deemed dispensable. This omission can be a point of conflict between lenders and appraisers, as the necessity of one or more approaches is debatable in certain situations. This post attempts to clarify the instances where the cost approach is either relevant or extraneous to a property’s valuation. Being able to prudently determine the importance (or otherwise) of the cost approach to valuation increases efficiency and fosters understanding between lenders and appraisers.

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Market Analysis: Why This Might be the Most Important Section in an Appraisal

The Market Analysis section in an appraisal report contains precious information that directly influences the value of a property and also provides priceless insight into a myriad of data relating to the financial feasibility of a property. It is common for many prospective users of an appraisal report to ignore various sections of the report and focus solely on segments that indicate property value. The downside of this approach to valuations is that the reader, therefore, misses key insights into the subject market that can benefit the owner, buyer, seller, or lender.

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