The prospects for new residential and commercial development are rapidly deteriorating in the Boston area, amid the efforts to address the housing crisis.
There’s been a substantial drop in housing construction in Greater Boston due to the instability in global financial markets, persistently high interest rates, and soaring construction costs that are stifling progress, the Boston Globe reported.
The economic climate has created significant pressure on the construction industry, leading to a backlog of permitted but uninitiated projects, threatening to exacerbate the already pressing housing shortage and the need for modern office spaces adaptable to the post-pandemic world.
Greater Boston witnessed a 43 percent decline in housing permits issued in September compared to the previous year, and a 27 percent decrease in permits obtained during the first nine months of 2023, representing the lowest rate since 2012, the Globe said, citing data from the Census Bureau.
Boston specifically experienced a steeper decline of 46 percent in new unit production during the same period, impeding progress in a housing market that was already strained due to numerous factors, including local zoning regulations that are unfriendly to new construction.
Both Mayor Michelle Wu and Gov. Maura Healey are contemplating incentive programs to stimulate development initiatives. While the Wu administration has launched a short-term pilot program offering tax breaks for converting vacant offices into housing, the Healey administration has proposed including $50 million in a housing bond bill to bridge financing gaps for housing developments.
The challenges aren’t limited to residential projects; commercial developments are also facing obstacles.
High interest rates, escalating construction costs, and increased regulations have compelled developers like The Mount Vernon Co. to hold off on new multifamily projects. While there’s a demand for office spaces, uncertainties surrounding the future of work and financing difficulties are hindering the commencement of new office tower constructions. The situation is further compounded by the impending maturity of approximately $1.5 trillion in commercial real estate debt by the end of 2025, raising concerns for regional banks.
“That’s a cloud hanging over everybody’s head right now,” John Fish, chief executive of Suffolk Construction, told the outlet.
Despite the hurdles, industry experts believe that the slowdown might offer an opportunity for the city and its real estate sector to stabilize.
— Ted Glanzer