It’s not news to anyone in Boston that housing in and around the city is extremely expensive, but an article in The Boston Globe today reports that “24 percent of working families, suffered from a ‘severe housing cost burden’ of spending more than 50 percent of their income on housing in 2010,” according to a recently released study from the Center for Housing Policy. That’s up from 22% in 2009.

But what the article doesn’t mention is that the high prices, and in particular the struggles of low income families in the Boston area, are partially a function of housing policy. Harvard economist Edward Glaeser has studied this issue closely, and his research should inform how we think about Boston’s high price of housing. Glaeser identifies restrictions on new construction, including minimum lot size and other “land use controls,” as placing limits on the building of new housing stock in Boston, and in turn contributing to higher prices in the short term, and more price volatility in the long term.

In a 2006 policy brief Glaeser highlighted the impact of overly restricting housing policy on lower income residents, writing:

“Restrictions on housing supply, therefore, are helping to make greater Boston a boutique region for educated elites because people with lower incomes just cannot afford to live here. This effect is troubling for anyone who cares about living in a diverse region.”

The high rate of families paying the majority of their income to cover housing points to this effect in action.

But this isn’t just a problem for low-income families. While Boston’s high level of human capital has allowed it to mostly thrive economically despite limits on new construction, it still creates an economic drag for the city. Firms in Boston have to compensate employees for the high cost of housing, which means “high housing costs push up the high costs of doing business.”

Continues Glaeser:

“However, ?rms do not necessarily accept the high costs of doing business in a region standing still. Throughout the second half of the 20th century, for example, many businesses moved from higher wage, heavily unionized areas of the Midwest and Northeast to new plants in the cheaper wage, non-unionized, right-to-work states in the South. Today, high
private-sector wages in greater Boston re?ect the need to offset high housing costs, not unions. Nevertheless, the high wages have the capacity to repel employers just the same.”

In addition to making Boston more appealing to employers, making it easier to build more housing here would have another likely economic benefit. There is a robust economic literature around the notion that greater population density promotes innovation and economic growth for the simple reason that such density makes idea sharing easier. Just like startups benefit from clustering together in the same neighborhoods and even workspaces, cities with more density can expect – all else being equal – to have more vibrant economies.

I’m not a housing policy expert so I won’t offer any specific regulatory changes but, speaking generally, promoting new construction and specifically greater housing density in the Boston area could mean a more prosperous, diverse, and entrepreneurial city. And that’s something we should all support.