Massachusetts housing prices may be roaring back in some markets, but that picture doesn’t necessarily apply to places that are in less demand, and which need strong price appreciation the most, in order for their populations to move on and move up over the long term.

Using data from The Warren Group, publisher of Banker & Tradesman, we sampled median sale prices for the 11 communities across the state that were the original 11 designated Gateway Cities – midsize urban centers, most of them former manufacturing hubs,  that anchor regional economies around the state. They are: Brockton, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Lowell, New Bedford, Pittsfield, Springfield and Worcester. They have struggled as the state transitions into a knowledge-based economy, with its epicenter in and around Greater Boston. We chose figures for June of each year (the most recent month this year for which figures are available) for 2005, the peak year for prices before the crash; 2010, the trough year; and 2013.  

In 2007, think tank MassInc. presented a mixed picture of the future of the first 11 Gateway cities in its report, “Reconnecting Massachusetts Gateway Cities.” Greater Boston held the lion’s share of the state’s economic activity. The cities’ loss of 134,000 manufacturing jobs from 1960 to 2005 accounted for more than one-third of the state’s total decline in manufacturing during that period. And 30 percent of the state’s poor lived in the 11 Gateway Cities at the time of the report, a figure that had been unchanged for a decade.

Gateway City households saw real median income increase by only 10 percent in 2005 dollars between 1980 and 2000, a time when the Greater Boston area enjoyed a 32 percent increase.

But the relatively weak income picture compared to Greater Boston didn’t deter a hyper-escalation in home prices from 2000 to 2005 in the Gateway Cities (78 percent) that far outstripped those of Greater Boston (37 percent), MassInc. reported.  

It would prove to be a particularly cruel illusion. None of the 11 Gateway Cities have seen a return to the pre-crash peak median sale prices of 2005, though Holyoke and Pittsfield come close, according to records compiled by The Warren Group.

The 2007 report noted “a youthful, growing, immigrant and minority workforce that with the requisite training can replenish the state’s aging labor force.” It was this population that was and is the most motivated to put down the roots that would lead to improvement of its economic lot. When the housing crisis hit them, it would prove to be a gift that kept on taking from Gateway Cities.  

In 2009, MassInc. followed up with another report, “Going for Growth: Promoting Residential Reinvestment in Massachusetts Gateway Cities,” which noted that despite a resurgence in demand for urban living in many U.S. cities, families often opted away from buying homes in weak markets (defined as those whose values had fallen below the cost of construction and in which appreciation was uncertain). So property owners became understandably hesitant to invest in improvements.  

The same problem applied to rentals. Rental cash flows were demonstrated to be even less likely to finance construction of a single family home at the time the 2009 report was published. The dilemma was compounded by the aversion by employers to locate close to these markets. This impacts school budgets, which had been seriously impacted by local economics for decades before the housing crisis.

Building new housing units in distressed neighborhoods didn’t solve the problem – it just made it worse. According to the 2009 report, the new housing “assigns more poor families to neighborhoods with weak schools and limited job prospects.” This is a lesson that should have been learned from the urban renewal efforts of the 1960s and 1970s, but clearly wasn’t.

Weak Market

Fast forward to this year. MassInc.’s most recent report on the Gateway Cities, “Transformative Redevelopment: Strategic State Policy for Gateway City Growth and Renewal,” calls for public-private financial support of projects that can attract significant follow-on private investment. The report noted that “[d]ecades of suburbanization and deindustrialization have reduced property values to the point where real estate markets are no longer functioning properly.”

According to the newest report, the prime barrier to transformative redevelopment is the relatively weak real estate market in Gateway Cities. While low housing costs are beneficial for entry-level workers, they aren’t sufficient to cover the carrying costs of creating and maintaining real estate infrastructure. That’s why many recent generations have moved up and out of Gateway Cities after having been able to build a down-payment war chest as their incomes grew faster than their expenses. For example, for many years, Worcester has been a less vibrant home purchase market than its immediate suburbs.

The new report calls for state and municipal governments to make long-term commitments to projects that will create benefits downstream, benefits that may not directly accrue to the public coffers but, it would be hoped, will reverse decades of decline by capitalizing on the Gateway Cities’ very real resources – colleges/universities, health care networks and cultural attractions. However, most of these three are not-for-profit entities, which do not contribute to the municipal tax base unless they choose to make payments in lieu of taxes. The mark of success will be attracting employers in the for-profit sectors who are willing to be the private part of the public/private investment picture.

Several of the Gateway Cities have already made headway in this regard. Worcester’s entire downtown is undergoing a long-delayed, comprehensive renovation into a multi-use district anchored by Unum, a large corporate tenant, with further investment by The Hanover Insurance Group, which headquarters in the city. In Lowell, renovation is a work in progress, but private investment has combined with public support to create a destination, and is creating commercial space as well as apartments. Making Gateway Cities economically attractive destinations for people to gravitate to and thrive will be the key to capturing and sustaining the vibrancy that is the hallmark of their diverse populations.

Email: coneill@thewarrengroup.com