Just take a look at Economics 101…
To find out why Boston real estate is so expensive, we just have to look at Economics 101: Supply and Demand.
- Boston is home to a lot of universities, hospitals, software- and financial-institutions that traditionally pay high salaries. The average salary at Liberty Mutual is over $86k and you know the mail clerk isn’t bringing that home.
- Boston attracts over 152,000 students a year. Considering that 691,000 peoplecall Boston home, that means that 21% of them are students.
- And not just any students, tuition costs at BU and BC are over $50k a year. Parents who are shelling out more than the average US salary to educate their kids are not going to balk at paying a couple of thousand a month for an apartment.
- The transient population of students and medical interns makes Boston very attractive to investors.
- 33% of residents are 20-34. Coincidentally, the most popular age to buy your first home is 33.
All these bullet points mean lots of demand.
Boston is less than 90 square miles – compared to 468 for NYC – and many areas are discouraging large development because of traffic and infrastructure concerns. That means not much supply.
When dozens of people want to buy one house, what’s the seller to do? She can either keep raising the price until only one buyer is left or let the buyers fight it out amongst themselves by submitting higher and better offers. Landlords who have many potential tenants keep raising rents and get fussier about things like references and credit score.
And you thought you’d never use any of that random stuff that you learned in college, right? Economics does have some practical applications.
Some factoids that you may already be experiencing:
- You need an average household income of almost $89,000 to live comfortably in Boston.
- Boston’s cost of living is 48% higher than the national average.
- It costs more to rent an apartment in Boston than in LA. In fact, Boston is the 4th most expensive city for renters.
The good news is that most experts agree that we’re reaching the top of the cycle because:
- Some residential developments, long in the planning, are finally being built.
- Many homes shoppers have bought something.
- The rental market is oversaturated, making the city less attractive to new investors.
- Other economic stuff like rising interest rates are taking their toll.
Although it’s unlikely that we’ll be seeing Boston prices drop significantly any time soon, we should see bidding wars and buyer craziness decrease over the next few years. One good thing for those who are able to buy real estate in Boston, is that the factors that make the city expensive also help homes hold their value even when national markets decline.
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