Despite Improvements, Boston Housing Now Among Nation’s Most Unaffordable

Even though housing prices in Greater Boston are down almost 20 percent from what they were four years ago, this region is still one of the most unaffordable places to live in the country, according to a new report.

There are signs of recovery, with home sales and prices beginning to improve. But rents in Boston are now the second highest in the country, after San Francisco — even higher than in New York.

"Costs here in Boston have actually gone up relatively because prices have fallen so much further elsewhere," said Barry Bluestone, dean of Public Policy and Urban Affairs at Northeastern University and co-author of the Boston Foundation's 2009 housing report card (PDF).

The report, released Monday, reveals a spike in foreclosures over the last couple of years has driven up demand for rental housing and pushed up prices. Rents were up 11 percent this spring compared to the second quarter of 2005, Bluestone said.

"If this housing cycle looks like the last housing cycle, and it already does look that way, then it will be another four to five years until prices get back to where they were in 2005," Bluestone said.

Overall, however, housing prices are beginning to stabilize across the nation as well as across Greater Boston, which Bluestone said could be a precursor to a recovery if demand for new houses begins to pick up.

For a short-run fix to rising rent, Bluestone recommends expanding voucher programs to help people pay the rent.

Bluestone said his long-term concern is of the slow growth in new housing stock, which Bluestone terms a "Third Civil War" playing out across the nation — the first being the Civil War in the 19th century, which the North won, and the second being the battle over where manufacturing would take place in the 20th Century, which the South won.

"The Third Civil War's going to be what regions of the country, what metro areas, what states can retain and attract young people," Bluestone said. "Housing costs (and) rents are going to be a critical decision in where people decide to move, where people decide to remain. If we can't solve our housing price and rent problems in the future, we're going to lose that civil war."

Another problem, Bluestone said, is persuading young people and first-timers to buy into the market. He advocates federal legislation that would allow new homebuyers to purchase home insurance from the federal government. If a homebuyer is forced to sell the house after three years and ends up taking a loss, the government would insure 90 percent of the loss.

"This should get people into the market. It would be much cheaper than the $8,000 home tax credit we have now and I think it would stimulate more sales now to get the economy moving," Bluestone said. Analysts expect prices to have recovered and continue rising over the next few years, so few people would suffer a catastrophic loss.

Bluestone said U.S. Rep. Barney Frank, D-Newton, has endorsed his plan.

Chip Case, an economics professor at Wellesley College, said it is hard to predict what will happen if the federal tax credit for first-time homebuyers expires.

“We are not out of the woods, unemployment is rising and rising rapidly here in the commonwealth,” Case said. “We’ve got a fair amount of uncertainty about where the housing market is going.”

WBUR's Monica Brady-Myerov contributed to this report.