After what has felt like a decade of waiting and staying home and masking up and testing and vaccines, things are starting to change. Cautious optimism is the word of the day. There are comforting signs in the data from the wastewater COVID-19 tracking system developed and monitored by the Massachusetts Water Resources Authority, which has shown a dramatic decrease in indicators of COVID-19 infections through wastewater analysis at the Deer Island Treatment Plant. I am cautiously optimistic about 2022 and I’m hopeful that it’s not just wishful thinking driven by the desire to get out and about again. Here’s hoping! After what I can only describe as a sluggish and sedentary 2021 where the real estate markets were in a holding pattern at best and a freefall at worst, 2022 promises action, and lots of it. The wait and see is over.
With inflation threatening to stay at the party long after is polite, the Federal Open Markets Committee has hinted that it will take action to address those inflationary pressures in the way of a number of interest rate hikes in 2022, among other efforts. Reduced monthly spend on Treasuries and MBS products had already started in 2021. The FED has tried to be as nimble and responsive as they practically can be as a result of the unpredictable ways that COVID variants have evolved and disrupted our lives. Much like the disparate impact of the pandemic, writ large, inflationary pressures seem to disproportionately impact certain parts of the economy and have a trickle-down impact to the pockets of consumers in varying ways and with varying significance.
Real estate markets have already begun responding to changing environments, conditions, and projections. The residential real estate markets are settling in to a prolonged period of ‘new normal’, while the multifamily markets are experiencing a renewed renaissance after a period of inflection, uncertainty, and softening. Recent rent growth estimates for Boston’s various neighborhoods harkens back to the boom days of yesteryear. Not only back to par but pushing the limits of rent growth and expanding supply as quickly as will be allowed. This is good news for the apartment markets, but also a positive signal that people, indeed, do want to be back in the city, with all its charm, convenience, and opportunity. I would expect that trend to continue as residents and companies figure out their long-term employment strategy. Even if your commute is just to your living room, Boston sure is a great place to live the rest of your life. That hasn’t changed.
Again, the impacts are not uniform. We’re hearing a lot about The Great Resignation and what that means for the U.S. economy and local trends. There is a level of clarity that is lacking in the data and what happens to the rest of the participants in the economy. How this will change the world of work, the office and retail environment, and inequalities in the economy, is something I’m paying a great deal of attention to. There will be a commercial real estate impact to the growing pains, but it’s hard to know how that will play out, just yet.
The recently released report on America’s Rental Housing, by the Harvard Joint Center for Housing Studies (JCHS) describes the disparity of impact within the economy and housing, more generally. While the single-family real estate market is robust relative to pricing and upward pressure, the apartment rental markets have seen dramatic increases in rent growth and reductions in vacancy rates. Great news for market-rate participants. However, low-income residents have suffered the most significant impacts of job losses in the service economy, have been impacted by significant financial burdens, and are significantly at risk of housing insecurity, and therefore economic and health insecurity. We must think of housing as part of an economic and healthcare system. An exciting program has been recently discussed to address a broader spectrum of economic assistance for multifamily rental housing, at the federal level, and that is the Middle-Income Housing Tax Credit (MIHTC), which will compliment and mirror the long-established and phenomenally successful Low Income Housing Tax Credit (LIHTC) program. MIHTC projects would aim to serve the need for adding units to the supply of ‘missing middle’ housing with resident incomes lower than 100% of area median income (AMI).
All housing is good housing and there is a renewed interest for increasing density, availability, and affordability throughout the housing economy. 2022 promises to be a big year and promises action and reaction. I continue to remind you that as stewards of the built environment we constantly communicate and engage with constituents, and we have many opportunities to balance the scales of equity, inclusion, dignity, respect, and kindness. I challenge you to take action and pay attention to your surroundings.
Brett Pelletier is chief operating officer with Kirk&Company, Real Estate Counselors, Boston, Mass.