City officials and local developers are closely monitoring the effects of inflation and higher interest rates on real estate and the construction markets, two areas that have boomed in recent years. City officials are also looking at making changes to the development review process to get affordable housing moving before it’s too late, said Arthur Jemison, Mayor Wu’s chief of planning and the head of the Boston Planning and Development Agency (BPDA).
The effect of the Fed hiking interest rates as part of its efforts to fight inflation, and the constantly increasing costs of construction labor and materials, have their attention, he said.
“Boston emerged from the pandemic with a very tight residential rental market and continues to be an attractive place for residential investment,” Jemison told the Reporter. “Still, if rates and construction prices continue to rise or stabilize at a high level, economists predict a slowdown nation-wide, including Boston.”'
Dorchester-based developer Travis Lee, who has several projects in the pipeline, said construction material price increases and rising interest rates have “absolutely” impacted current developments, noting they have had to change direction from rental to homeownership housing.
“Challenges will persist even with homeownership as homebuyers are confronted with higher interest rates to buy the homes that we build,” he said. “We are expecting an overall flattening of values and slowdown in the new construction space.”
Jemison said that if things settle higher, it would be even more detrimental to affordable housing projects. To that end, he said, they are looking at revising the Article 80 process in the context of responding to Wu’s recent executive order calling for expedited review of affordable housing. The term “Article 80” refers to the relevant portion of the city’s zoning code.
“We understand that affordable housing projects are particularly challenged by this dynamic,” Jemison said. “The BPDA is currently working to identify changes to the Article 80 process to respond to the executive order.”
In her Sept. 29 announcement, Wu, noting that it can take up to 337 days for affordable housing projects to get approval, said her administration’s goal is to reduce that time in half via the executive order.