What’s driving income inequality in Boston? Is it a globalized economy? A federal tax policy that shifts wealth to the 1 percent? Or, as a new report suggests, is it also a flood of investment in the city’s luxury condo market, where thousands of units are going for more than $1 million, and some are not even occupied?
Like other boom cities worldwide, Boston’s real estate market is luring overseas investors as a place to park their assets. The report, by the Institute for Policy Studies, a Washington think tank, examined the records of 1805 units in 12 luxury buildings in Boston (average price $3 million) and found that 64 percent were not claiming the residential property tax exemption. A third were purchased anonymously through real estate investment trusts or shell corporations. Many were paid for in cash. These aren’t homes, they’re five-room safe deposit boxes.
The report argues that the surge of global capital into Boston’s luxury housing market threatens to hollow out neighborhoods and drive up land values and housing prices across the city. But it’s also an opportunity to offset some of the imbalances being created between the super-rich and everyone else.
The city of Boston is on a building spree, in hopes that an increase in the supply of housing — regardless of price-point — will eventually reduce demand, and thus prices overall. Luxury developers are assessed a linkage fee of roughly $9 a square foot, which helps subsidize affordable housing in the neighborhoods. Some even say that absentee-owned luxury units are a net plus for Boston because owners pay property taxes without using city services such as schools or police. Speaking at an urban planning conference earlier this year, Sheila Dillon, Boston’s housing chief, cheered construction of the glam towers going up in the Seaport, Back Bay, and elsewhere. “The luxury market has been very good to us,” she said.
But has it been good enough?
Other cities have been more aggressive in what is known as “value capture” from their development booms. San Francisco imposes a real estate transfer surcharge on units over $5 million. Vancouver instituted a vacancy tax to discourage ghost condos and raised $30 million the first year. Hong Kong assesses a separate tax on commercial and residential real estate to fund its excellent transit system. Chuck Collins, a coauthor of the report, thinks there is ample room for improvement in Boston. “We have to ask: Are we doing everything possible to capture the benefits of the luxury housing market for the good of ordinary Bostonians?”
Mayor Walsh told WGBH this week that he is willing to evaluate the city’s policies toward luxury housing but doesn’t like a tax surcharge. “I don’t think we should start taxing at different rates,” he said. But the city already taxes residential property differently, depending on an occupant’s age, income, and other factors. The 35 percent tax break homeowners can claim through the residential exemption is precisely that kind of differential. The statewide circuit breaker gives low-income elderly homeowners lower property tax bills; why not the opposite for high-income, absentee owners?
It’s hard for any mayor, much less one who came up through the building trades, to pester developers who want to spend billions on luxury housing. But relying on a construction boom to solve the affordability crisis evokes parallels to the Big Dig. The Central Artery reconstruction created thousands of jobs, carrying the Boston economy through some rough patches, and it vastly enhanced the value of downtown properties. But it didn’t fix the core problem — traffic congestion — because the state dropped the ball on the public investments it had promised: connecting the Blue and Red Lines, extending the Blue Line to Lynn, restoring service on the Arborway line.
Similarly, our current construction boom is not solving the housing affordability problem, because there’s not enough public investment. The median income in Boston is $58,500. Public officials need to step up with housing for those residents, homes that are directly, permanently affordable, not trickling down from the 61st floor of One Dalton Street.
Renée Loth’s column appears regularly in the Globe.