Can Worcester Afford these rents?

Question

Have you seen the latest article from the Worcester Telegram? It's about the skyrocketing rents in Worcester.

Read the article here.

I've been discussing this issue for years on WorcesterMulti Bigger Pockets Blog.

So, $1919 for a one-bedroom in Worcester? That's way too high. It's changing the whole vibe of the city.

Worcester used to have its own identity, but now it's become a commuter hub for folks working in Marlboro/Hudson, Natick/Framingham, and even Boston, thanks to remote work options.

Let's break it down. Add in utilities at $200 a month, and you're looking at $2119/month. If that's 30% of your income, you'd need to earn $7k a month or $84k a year. But here's the kicker: the median household income in 2021 was only $56,746, and most households below that are renters.

In the article local agents in the multifamily sector talk about why landlords are hiking rents. Taxes, water/sewer, insurance, maintenance – it all adds up.

It's heartbreaking that Worcester is becoming too pricey for its own residents. This has led to a diaspora to places like Webster, Northbridge, and Southbridge.

Sure, there are new units in the pipeline, but they're unlikely to help the typical Worcester renter. It's a tough situation all around.

Brian J Allen · Answer

@Daniel Consalvo, I attended the ADU meeting last night with the city.  That will help slightly, but not much.  The biggest issue for Worcester is the commercial tax rat at over $30/$1000 which discourages businesses from the city.  You will see that most of the non residential construction is in Shrewsbury and Millbury simply due to taxes.  The city is also encouraging people to apply for variances on smaller than 5000 SF lots which might help.  What I am seeing as an agent it many of my clients are selling properties I got them and taking the gains.

Daniel Consalvo · Answer

Brian,

I am a but and hold investor (central ma) who built a portfolio on prices and interest rates of the past.  The recent high inflation rates over the last several years have increased my income and equity beyond my initial projections at the time of purchase.  But...If the average renter is being left behind, if their income can't stay in line with the cost of living, I fear it will lead to a larger crisis and continued intervention/regulation by government.

I would prefer to return to more predictable inflationary increases in values and rents so that this investment vehicle of REI can remain intact. Preserved for future generations as a way for the average income earner to build wealth over time and provide a clean, safe place to live for other people.

We need more units constructed. Not sure how we get there.

Dan C

Scott Mac · Answer

How much is your local section 8 paying for a property like this.

Are these units section 8 quality, or are these units being dolled up with stone countertops and lvp floors instead of sanded hardwood floors or Armstrong 12 by 12 tiles.

Are we seeing the ceilings made of plaster or wallboard, or are we seeing the ceilings made from those little squares that are stapled up there, or two by three drop ceiling tiles?

I mean what are they getting for the extra money. It used to be an Oldsmobile cost more than a Chevy but you got a few extra do dads on it, a little bit more plush for the extra money.

Is that what we have here, people dolling up the units- value add- and collecting the extra rents, or are the renters paying higher rents for a more low class living experience?

Charlie MacPherson · Answer

Something I've observed for many years is that the price of housing in the Boston area has skyrocketed.  A triple-decker where I grew up in Jamaica Plain would have sold for $20,000 when I was a kid in the 60s.  Now it's well over $2M.

As a result, buyers of moderate means were forced out in concentric circles.  To the east is only ocean, so no help there.  But to the north, west and south, there has (almost) always been a stock of housing that was more affordable than in Boston.But then all of that housing stock kept rising in price, and earning power didn't keep up.  That meant that those same buyers could no longer afford a home in Norwood, Reading or Braintree.  They were forced further away.  That trend has continued unabated.

Now I see people commuting to Boston from Portland, Maine (!!!) - and that same price trend has come to Maine as well.  Housing in Portland and surrounds has also skyrocketed - and those pricing waves are also moving out in concentric circles.  Boston and the immediate surrounds are still the employment capital of the region and people are enduring longer and longer commutes for the opportunity to work in the colleges, hospitals, pharma companies and financial district of Boston / Cambridge.I wonder if there's a practical limit.  Is there a commute that's so long and arduous that people turn away from Boston and decide to work on central Maine and New Hampshire, trading off some income for quality of life?I was born and raised in Boston.  I'm approaching retirement, so I no longer have to worry about it - but I promise you that if a recruiter called me with an opportunity in Boston, it would take a gun to my head for me to sign up for another 2 hours of bumper-to-bumper commute each morning.