New Boston Indicators analysis finds that despite economic gains, inequality persists in Greater Boston

A new report by Boston Indicators finds that Greater Boston’s continued economic boom has failed to crack persistent economic inequality among residents. 

The new report, Boston’s Booming… But for Whom?: Building Shared Prosperity in a Time of Growth, was released Wednesday morning to a crowd of 300 people at the Edgerley Center for Civic Leadership.

The report finds that Boston actually ties for second nationally among the nation’s largest cities when it comes to the ability of those raised in lower-income households to improve their economic state as working-age adults. Boston also ranks high when breaking out by race, but the analysis finds that Blacks in the cohort still earn 22% less than their white peers.

The challenges of the economic boom on the middle-class are evident in the shrinking size of Boston’s middle class. A Boston Indicators analysis finds that while the number of low- and high-income city residents has risen sharply in the past three decades, the number of middle-class residents has declined.

One possible culprit? The cost of housing. Despite the City of Boston playing a leadership role in the region by creating thousands of units of affordable housing, the Indicators team analysis found just 20 census tracts of 150 in Boston where median rent would be considered affordable for a median income household. That list included zero tracts in Roxbury, Dorchester or Mattapan.

Affordable housing by median income
Redoubling efforts to produce affordable housing, close Boston’s racial homeownership gap, improve transportation, and continue to reduce incarceration in Massachusetts are highlighted among a dozen local action areas for building greater shared prosperity in the region.

The report is available now for download, and easily can be read online at bostonindicators.org.

The Indicators team plans to take deeper dives into a number of the issues raised by the report during the course of the coming year.


Source: Boston Foundation

Comment on the BEA report on Massachusetts GDP state

OVERVIEW

• Real gross domestic product (GDP) state increased in 43 states and the District of Columbia where real gross domestic product (GDP) increased in the first quarter of 2017, according to statistics on the geographic breakout of GDP released by the U.S. Bureau of Economic Analysis.
• The Massachusetts economy grew by 1.1 percent in the first quarter of 2017. This was slightly below the 1.2 national average. 
• The growth rate was slower than the annual rate for 2016 which posted at 2.0 percent but was an improvement over the first quarter of 2016 which contracted by 2.0. 
• Real GDP by state growth in the first quarter ranged from 3.9 percent in Texas to -4.0 percent in Nebraska. See Chart 1 from the BEA. 
• As a region, the six states of New England only grew by 0.9 percent. The Southwest — Texas, New Mexico, Arizona and Oklahoma — grew the largest for Qtr1-2017 at 3.3 percent nearly three times the adjusted-for-state comparison U.S. rate of 1.2 percent. 
• The current dollar size of the Massachusetts GDP by State is $519.9 billion. 

ANALYSIS 

GDP-State is the market value of goods and services produced by labor and property (or capital) in a state. The sum of GDP for all states released this week (1.2 percent for Qtr1-2017) differs from the national GDP number (1.2 percent)* since outputs like military and overseas activity can’t be attributed to any one state.  The Massachusetts economy comprises 2.7 percent of the total U.S. economy according to the BEA update. New England, as a region comprises one of the smallest at 5.4 percent outpacing the Rocky Mountain states which accounts for 3.4 of the national total. 

Real Estate and Rental and Leasing, Mining and Durable Goods Manufacturing were the leading contributors nationally. In Massachusetts, the leading contributions to the percent change were: Real Estate and Rental and Leasing, Construction, Health Care and Social assistance, Durable-goods Manufacturing, Wholesale Trade, Nondurable-goods Manufacturing, and Administrative and Waste Management Services. (See Table 1 p. 2.) 

Massachusetts ranked 25th in growth during the first quarter.  How did Massachusetts rank in this latest BEA report compared with its high-technology competitors?  The state of Washington grew by 2.7 percent, Virginia by 2.0 percent while the Utah economy grew by 1.9 percent. Meanwhile, California slowed to 0.1 percent, Colorado by 0.4 percent; North Carolina grew by 0.7 percent as Minnesota contracted by 0.3 percent. 

*Revised figure from 7/28 GDP press release; The originally reported figure was 1.4 percent.

The value of the mortgage interest deduction is overstated

A study that should have implications for tax reform. An optimal tax system collects revenue from the broadest base. Economists have long believed that the homeowner mortgage deduction misallocates capital to the housing sector. This new study, "Do People Respond to the Mortage Interest Deduction?: Quasi-Experimental Evidence from Denmark," from Jonathan Gruber, Amalie Jensen and Henrik Kleven finds that prospective homeowners are not swayed by the tax incentive.

Using linked housing and tax records from Denmark combined with a major reform of the mortgage interest deduction in the late 1980s, we carry out the first comprehensive long-term study of how tax subsidies affect housing decisions.  The reform introduced a large and sharp reduction in the mortgage deduction for top-rate taxpayers, while reducing it much less or not at all for lower-rate taxpayers.  We present three main findings.  First, the mortgage deduction has a precisely estimated zero effect on homeownership. This holds even in the very long run.  Second, the mortgage deduction has a sizeable impact on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses.  Third, the largest effect of the mortgage deduction is on household financial decisions, inducing them to increase indebtedness. These findings suggest that the mortgage interest deduction distorts the behavior of homeowners at the intensive margin, but is ineffective at promoting homeownership at the extensive margin and any externalities that may be associated with it.

The paper is available at the National Bureau of Economic Research.

A look at the City of Boston's capital spending plan for FY2018-FY2022

Titled, "Ambitious City Projects Benefiting from Building Boom in Boston," https://shar.es/1F3Fbr, the article examines the good luck Boston's enjoying as a result of the building boom.