The Foreign Buyers Are Taking Over (Not!)

A headline in the Boston Globe screams: “Boston’s new luxury towers appear to house few local residents.”   The headline is based on a report by the leftist Institute for Policy Studies, which claims that in twelve Boston condo buildings, “64 percent do not claim a residential exemption, a clear indication that the condo owners are not using their units as their primary residence.”*

The report accordingly concludes that these buildings do not “address Boston’s acute affordable housing crisis.” This seems to be another version of the common “foreign buyers” argument: that new housing does not hold down rents, because it will all be bought up by rich foreigners who will let the units sit unoccupied forever. Although the report does not explicitly endorse restrictive zoning, it does urge the city to require new residential buildings to be carbon-neutral- a rule that might make residential construction more difficult.

But this inference would be wrong.  If you own a condominium, you have three choices: (1) to live in it; (2) to sit on it and lose money on your mortgage; or (3) to rent it out.   Obviously, you make the most money through choice (3)- renting out the condo.  So even a condo owner who does not choose option (1) has a strong incentive to adopt choice (3).   Thus, it seems likely that at least some, if not all, of the condos will be rented out, thus increasing rather than decreasing regional housing supply, which in turn will have a positive effect on housing prices.

*The residential exemption saves Boston homeowners up to $2500 per year on their tax bill.  I would think that at least some owner-occupants are unaware of or forget to file for this exemption- but since I have no idea how common this is, I am reluctant to argue that this possibility alone makes the IPS report defective.  A Bostonian might want to chip in here.