Low Inventory Will Triumph Over Inflation, Global Uncertainty
By Sue Hawkes | Special to Banker & Tradesman
Boston sustained a trademark bull condominium market in 2021. This dramatic uptick in activity was a powerful microcosm of the overarching housing trends that swept the nation. Sellers were eager to capitalize on historically high prices and sold to an army of buyers seeking the advantage of low interest rates and driven by pent-up demand. Nowhere was this more evident than at the high end of the market.
In 2020, the pandemic discouraged urban living among empty nester buyers, a demographic of paramount importance to the luxury market. However, as the value of their homes rose, the city came back to life and they became more disillusioned with “suburban living,” they made the leap to move into the urban core. This cohort provided the basis for the extraordinary jump in absorption of luxury sales, over 17 percent year over year.
Also contributing to the sales at the high-end was the influx of urban dwellers trading up; affluent, young, high-income earners new to the city and the return of the “parent investor,” purchasing for their children.
But – with 2021 statistics such as an 11 percent increase in prices for the luxury market and a 30 percent increase in sales over 2 million – 2022 has big shoes to fill.
Notwithstanding that challenge, the truth is 2022 is poised to repeat another banner year, albeit slightly cool in comparison. Interest rates are gradually inching up, affecting the affordability of the product and the events on the world stage could produce a lack of consumer confidence, resulting in cautious discretionary decisions. However, the overarching driver will still be a lack of supply.
Demand Far from Filled
Boston is experiencing an historical lack of housing, at all price levels. There were over 4,600 closings in 2021 and 440 of those were over 2 million, up 30 percent from the previous year. To clarify, Boston’s generally accepted definition of “luxury housing” consists of full-service, highly amenitized buildings with prices exceeding $1,500 per square foot. With that number quickly surpassing over $2,000 per foot, these units tend to exist in primarily newer, high-rise product.
Consider that there are approximately 175 unsold, new luxury units available that can close this year, 100 unsold available to close in 2023 and 500 under construction to close after 2023. Resales will add approximately 30 percent to these numbers. With an absorption at over 400 units per year, that total provides barely than half of the inventory Boston will need over the next three to four years.
The challenges of entitlement in this city are becoming more onerous. The threat of a luxury resale tax, expanded affordable housing requirements and overwhelming construction costs will force developers to reconsider creating housing in Boston. These impediments and resultant lack of supply will continue to drive up the value of the inventory we have, resulting in even higher price escalation.
With Boston’s robust economy leading the way, our position on the world stage is significant and noteworthy. High-paying jobs and employers continue to follow the brain trust and sources of human capital. We are fortunate to be the recipients of all that good will. As the city continues to enjoy its renaissance, the equity-rich buyers will choose to move here, stay here and trade up to newer buildings, with expansive amenities and hotel-level service – all “luxury” appointments.
Boston is poised to experience another good year, supported by price appreciation, in a tightly supplied market, continued in-migration of high-earning residents and an escalating economy.
Sue Hawkes is the managing director of The Collaborative Cos.