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Boston's Rental Market is Reeling - Market for Home Sales is Roaring

By
Services for Real Estate Pros with ProSource Media

2020 marked a divergent year in the Greater Boston housing market, as prices of homes for sale in Boston increased 7.5% in 2020 while average rent prices for Boston apartments dropped 2.6% city-wide.  There are a few forces at work causing this deviation, leaving many uncertain as to what 2021 will bring in terms of the local housing economy.  In this article, we’ll look at these forces and what they mean to the future of the real estate market in Boston.

 

3 Factors Causing Divergance in the Boston Real Estate Market

1.  Remote Learning

By breaking down the data by neighborhood, we can clearly see what is causing the rental inventory glut in Boston and the subsequent decline in rent prices.  The neighborhoods where inventory has increased the most YOY are the neighborhoods closest to local Universities that are known to be student enclaves.  Remote learning was the single biggest influencing factor that led to the rental market shrinkage in 2020. 

 

Boston Neighborhoods With the Largest YOY Increase in Apartment Vacancies:

  1. Downtown apartments: +2601.16%
  2. Fenway apartments: +949.06%
  3. Beacon Hill apartments: +915.52%
  4. Symphony apartments: +790.59%
  5. Allston apartments: +743.24%
  6. Back Bay apartments: +565.85%
  7. Charlestown apartments: +494.94%
  8. Mission Hill apartments: +358.41%

 

In Boston, roughly 60% of all apartment leases begin and end on 9/1, as it coincides with the beginning of fall semester.  In September of 2020, the vacancy rate soared to over 9% when most of the existing student leases ended and campuses were left empty.  It’s safe to assume that if remote learning is rescinded or significantly diminished in Fall 2021, it will mean a quick recovery for the Boston rental market.

 

2.  A Shift in Demand Towards the Suburbs

It should come as no surprise to anyone that people would prefer to live in more open spaces during a pandemic.  Being quarantined in an apartment Downtown seems tortuous compared to being confined to a house with outdoor access, especially if you’re working remotely. Many of the country’s largest cities saw diminished demand in their densely populated city centers in 2020 while simultaneously demand in outer-lying areas has either remained unchanged or increased. 

 

A close look at Boston’s data will reveal the same trend.  While apartment availability in Boston’s Downtown neighborhoods soared to unprecedented levels, outlying areas the saw the smallest YOY increase in vacancy rates out of all the neighborhoods in Boston.

 

Boston Neighborhoods With the Smallest YOY Increase in Apartment Vacancies:

  1. Mattan apartments: 5.72%
  2. Roxbury apartments: 9.09%
  3. Dorchester apartments: 22.40%
  4. Hyde Park apartments: 94.96%
  5. South End apartments: 123.30%
  6. Roslindale apartments: 151.35%

 

Looking at the data for the median home prices reveals the same trend.  While the median price of a single-family home increased by 7.5% in Metro Boston in 2020, the Massachusetts median home price increased even more at 12.2%.  

 

3.  Boston Metro Is Still Growing

The Boston Metro population has been growing steadily over the past decade, and that growth was not thwarted by COVID in 2020.  The metro area saw a population increase of 0.05% in 2020, despite the Bay State seeing a decline of -0.02%.  This growth is largely in part to the rapid emergence of Boston as one of the tech hubs of the US. 

 

PitchBook’s Q4 Venture Monitor reported that Metro Boston startups raised a record $16.8B in total deal value in 2020, a 48% increase from 2019.  That was almost enough to overtake New York as the second biggest market for VC funding.  This funding has brought with it a wealth of economic opportunity and jobs to the Greater Boston area, and is one of the primary factors driving housing market gains over the past decade.   

 

The Result:  Apartment Inventory Up - For Sale Inventory Down

When you combine the previous 3 forces, it's easy to see how there is an increase in home values and a decrease in rent prices.  With so many people working remotely, many professionals have fled their Seaport or Downtown luxury apartments in Boston to buy a home in the suburbs.  Combine that with the huge net loss of students renting in Boston, rent prices had nowhere to go but down.

 

When you add thousands of high paying white collar tech jobs to the region, you now have a growing population in the area all competing for a very small supply of for sale listings.  Total housing inventory for sale was down 23% YOY at the end of 2020, while unsold inventory hit an all time low of a 1.9 month supply, down from a 3.0 month supply at the end of 2019. 

 

Looking Towards 2021 - Will The Divergence Continue?

It’s safe to assume that Boston’s median home value will continue to grow at a rapid pace in 2021.  Developers have been unable to meet the demands of the growing population, especially in the single-family home category.  With interest rates as low as they are, don’t count on that demand waning anytime soon.

 

As for the rental market, whether or not it returns to normal largely rests on the area’s Universities and their learning policies for Fall 2021.  However, when you combine the attractiveness of reduced rent prices with exorbitant single-family home prices, it will likely push many towards renting in 2021. This could offset some of the inventory glut for rental units in Boston we’re seeing.

 

Overall, the short term rental market struggles may prove to be a net gain in the long run.  Many landlords who are sitting on vacant units would rather wait it out to see what September brings rather than slash rent prices below what they feel they are valued.  Many are using the down time to renovate their outdated inventory, something Boston greatly needs as soaring demand has caused many landlords to put off renovating in recent years. 

 

This will improve the overall quality of rental inventory in Boston, giving renters access to newer and more modern apartments.  Many landlords are significantly reducing move-in fees, giving renters the opportunity to afford units in neighborhoods they may have been previously priced out of.  So regardless of whether the rental market grows or shrinks in 2021, renters will win in the long run as a result of these challenges.

Comments (1)

Joe Manausa - Tallahassee, FL
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Thank you for sharing Boston's rental market. 

Feb 25, 2021 05:30 PM