The Greater Boston Real Estate Market

Angels for Builders invests in residential real estate projects in the greater Boston market. The Boston metro residential real estate market has many of the characteristic factors that drive successful, sustained residential real estate development over time, according to recent analysis and research at New York University and The University of Toronto. These include:

Urbanization

Following a secular trend of suburbanization that started in the 1950’s and 1960’s in the U.S., AFB believes that a long term period of urbanization is now underway.  Both young professionals and empty nesters increasingly seek to live in the cities and towns close to certain metropolitan centers where cultural events, work life, sports, entertainment, and educational opportunities come together in one nexus of activity, according to Richard Florida, a leading researcher at New York University.  Employers in the knowledge-based economy, in turn, seek to locate their operations in metropolitan areas where the highly-skilled employees necessary for the businesses want to live.  Increasing investment in development is now combined with urban policy increasingly creating new opportunities for housing.  The Greater Boston is an increasingly robust and fertile market for residential investment, according to market observers. 

Natural Limits to Supply

Like most major American cities, there is only so much land around the metro Boston area inside the Route 128 loop. And most communities in and around Boston have relatively strict zoning and other regulations that act as barriers to entry for new supply of real estate. 

New supply depends on renovating deteriorating housing stock, repurposing unused warehouses and office space, and developing on land that has been recently freed by owners or city officials for residential development. In essence, the market is governed to a certain growth rate by these limiting factors. This natural gating of supply creates a powerful economic for successful developers and funders that participate in the winning crop of projects each year.

Knowledge-Based Economy

Urban centers with highly educated workers and a concentration of universities, leading hospitals, and growth companies in the innovation economy have the necessary underpinnings to grow into the 21st Century, according to recent research. Metro Boston is a hub of world-class education institutions and hospitals that are major employers as well as centers of innovation and entrepreneurial business formation.    Largely as a result of the synergy between the health care institutions and universities, the city is home to the headquarters and/or research centers of several big pharmaceutical companies and numerous biotech firms, both large and small. In addition, technology companies, new kinds of companies in the innovation industry, and a set of burgeoning innovation upstarts populate the greater Boston economy. Venture capital firms, private equity funds, and a community of individual, “angel” investors and family offices round out the robust local capital market infrastructure. 

Foreign Investment Demand

According to a Realty Trac report recently featured in USA Today, buyers and investors from 10 countries around the world are increasingly investing in residential real estate in major U. S. cities such as Boston. Foreign interests consider residential real estate in the United States a safe haven for their investment capital in a country that has a common language and makes them feel welcome. “International homebuyers are attracted to the United States for a number of reasons. These include favorable housing prices, good weather, the country's relative economic stability and an attraction to America in general. As the housing market improved and home prices rebounded, the interest of foreign buyers in U.S. properties has soared. In all, interest in home buying, according to housing market firm RealtyTrac, increased by 95% or more in 10 countries, and at least doubled in nine of these nations.”

Primary Market with Embedded Growth Factors

Steady Home Value Appreciation

The Boston area is undergirded by structural factors that we believe will drive demand for residential housing for some time. As a comparative lifestyle value to other major American cities, Boston is populated with neighborhoods that support community and have town centers with sufficient retail to supply many day-to-day needs. Metro Boston is highly walkable, dense with museums and cultural centers, small in the scale of buildings, replete with variegated architecture and historic buildings, and a place that invests in excellent schools for the children of couples who choose to locate here. 

 

Home values in the Boston area have shown steady growth since the mid 1980’s with certain periods of weakness with average annual appreciation in the 2-3 % range. To give general historic economic perspective, Boston-area homes have appreciated 100 times in the last 100 years. The reliability in appreciating values can be attributed to the enduring market dynamics that we describe above. In addition, the recent completion of the Boston “Big Dig” project modernized what had previously been a highway-burdened downtown which freed and accentuated many of the city’s most compelling features: waterfront geography, open parks, walkability, and ease of connection from neighborhood to neighborhood. This considerable structural change that was the result of the largest public works project in the history of the United States has created considerable new aggregate value that is still being recognized and exploited.