Housing demands cause different housing economies

To the Editor:

In recent letters to the editor Mr. Schonborg and the Shenks once again attempted to diminish the importance of 40B. One of their contentions is that 40B is a dismal failure at providing affordable housing. I suspect the 38,000 families and over 100,000 people that have benefited from 40B would strongly disagree with that statement. While the families benefiting from 40B might only represent a portion of those needing relief from high housing prices, at least 40B provides some relief. A disturbing aspect of their opposition to 40B is that they offer no solutions to solve the affordability problem.

The Shenks also display a lack of understanding of basic housing economics. They deny that over the long run housing prices increase at approximately the rate of inflation. Housing prices, like any good, are determined by supply and demand. If demand exceeds supply, housing prices will increase at a rate greater than inflation. Numerous empirical studies have shown that housing prices do increase at approximately the rate of inflation when supply

not constrained.

While housing density in places like Boston is high, the supply of new housing is constrained by the lack of available land. In situations like that housing prices will increase faster than the rate of inflation because demand exceeds supply.

Using The Warren Group data, Westminster home prices increased by a factor of 2.5 times between 1997 and 2007, or approximately 9 percent compounded annually, which does exceed the inflation rate over that period. However, over the last 20 years median home prices in Westminster grew at approximately 3.8 percent annually which is in line with the average inflation rate over that period. This means that for significant periods of time home prices in Westminster increased at a rate significantly below inflation. In fact during the period from 1989 to 1994 housing prices declined 23 percent. Over the last three years prices have declined by 9 percent. Anyone who has lived through several housing cycles knows that housing isn't always a great financial investment.

The reason housing prices increased rapidly in this area over the last decade is a result of increasing demand for housing. Much of that increased demand is a result of families fleeing very high housing prices closer to Boston. Today approximately 50 percent of the workers in this area commute over one hour to work. At the same time the supply of new homes in this area has been constrained by large lot zoning, annual development limits and drawn out approval processes even for 40B developments. Hence, demand exceeded supply causing prices to increase at abnormally high rates.

In the process of trying to protect the character of their towns and prevent increased municipal costs, towns in Central Massachusetts enacted large lot zoning, annual development caps, and instituted drawn out approval processes for developing new housing. These constraints on the supply of housing are the true culprits for the lack of affordable housing, not 40B.

Colin Balogh

Ashburnham