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Increasing demand from real estate investors is making Boston’s rental market woes even worse. And a backlash is building on Beacon Hill.
Think single-family prices have gotten out of hand in Greater Boston?
Well, wait till you see what’s happened with the backbone of the local apartment market, small rental properties with two to four units where the family downstairs could very well be your landlord.
The median price of these smaller multifamilies has more than doubled in Boston since 2013, hitting $1.01 million in 2021, according to MLS PIN stats pulled by Coldwell Banker.
The price in Cambridge now tops $1.7 million, a 72 percent jump, with the same percentage increase in Somerville, where the median price for small multi clocks in at $1.2 million.
Some of this is clearly a reflection of Greater Boston’s chronic housing shortage of pretty much all types of housing – thanks, NIMBYs – which has driven up rents right alongside home prices.
Demand for apartments has surged in all three cities, which are at the epicenter of the region’s major growth industries – life sciences, higher ed, health care, high tech and finance – that have seen an influx of highly-paid professionals over the last two decades.
That demand, in turn, has helped send rents through the roof. After a pandemic pause, one-bedroom rents jumped 23 precent in Cambridge ($2,710), 20 percent in Boston ($2,590), and 8 percent in Somerville ($2,000) where, interestingly enough, a crackdown on condominium conversions may be helping preserve a larger pool of rentals.
Higher rents, in turn, equal higher prices for smaller rental properties when they hit the market.
Yet given these huge percentage increases, something else is also clearly going on here.
It’s Not Just Scarcity
For one, a shortage of homes in Cambridge and Somerville has some very affluent buyers snapping up homes with a couple rent units, converting them into single-families and further reducing the number of apartments out there, said Sara Rosenfeld, a Somerville-based premiere broker at Coldwell Banker.
But then there are the investors, who are everywhere right now in Boston, Cambridge and Somerville.
They range from overseas buyers– with the Chinese back in the game after a lull – to major investment firms, though these are likely to go for bigger targets.
“In the past few years, there has been an enormous amount of direct mail and calls from investors directly to homeowners,” Rosenfeld said. “I get these letters or calls all the time. Two of my seller clients chose to sell their homes this way during the past 12 months.”
Investment site Motley Fool even recently issued an alert to investors back in November, citing rising Boston-area rents “opportunities for investors in the suburbs and [G]ateway [C]ities.”
Along with being rather late in the game – Cambridge or Somerville rentals hardly qualify as a best-kept secret – it’s the last thing renters in all three cities need right now – even more investors kicking the tires and bidding up prices.
Sure, demand is high because of scarcity, but there is a lot of money sloshing around right now, looking for a place go, with real estate becoming just another asset class, a way of diversifying your portfolio.
The Inevitable Backlash Arrives
Needless to say, if you are putting down a million in cash for a two- or three-family, you are going to have to raise rents, which may very well involve giving the boot to the current tenants.
In Somerville, three two-families sold for $1.5 million, or a bit over, in the fall, and one for nearly $1.6 million. Three of the four sold well over their listing price, two for $200,000 above asking, the third for $188,000 over, according to MLS.
Given the frenzy, a backlash was inevitable, with state Sen. Pat Jehlen leading the charge with a proposal that would attempt to rein the activities of private investors, although in an indirect way.
The Somerville Democrat is pushing legislation that would enable cities and towns, should they choose to do so, to give renters first crack at buying their building should the landlord put it up for sale in a policy known as “right of first refusal” or “tenant opportunity to purchase.”
Scott Van Voorhis
But the real winners here are the community developer corporations, or CDCs, and other nonprofit housing developers, who have been pushed aside in more than one bidding war for apartment buildings by cash-rich investors and speculators.
That’s because the tenants, under Jehlen’s proposal, can turn over their purchase options to their local CDC in order to preserve the affordability of their units.
It has a real chance of passing as well – the House and Senate passed it last year, but the vote came the end the formal session, so legislative leaders were unable to override Gov. Baker’s veto as well.
And if it does, investors will only have their own greed to blame.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
