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Over the past decade, Boston has become one of the most expensive cities in the United States to rent an apartment. In fact, only New York City and San Francisco are more expensive in terms of average rent prices. Although Boston experienced a building boom from 2015-2020, construction slowed down during the pandemic as a result of: inflation, high energy costs, questionable permitting practices as well as affordability and green requirements which caused developers to seek other locations.  As a result, the supply of residential housing remains critically low in the Boston metro. Yet, the demand for rental units remains high in Boston on account of increasing enrollment at local universities and a growing population. This factors into why Boston apartments are so expensive versus other cities, in the United States and around the world.  Let’s unpack all the variables to why it is Expensive to rent in Boston and possible solutions to create more supply through charting a better course to production.

Average Rent Prices in Boston

The average rent price in Boston is currently $3,318 across all apartment sizes, and that figure has soared by over 30% over the past 4 years.  According to our Boston Pads Real Time Data, average rent prices have surged by 30-40% across all unit sizes.

The majority of this rental price growth occurred in the years directly following the pandemic. When inflation rates hit 40 year highs in 2021, we saw a drastic downturn in new housing construction. The previous administration’s concept of printing of money and an over stimulus of government related jobs wreaked havoc on the stability of pricing across the nation. High energy costs through a terrible energy policy resulted in much higher cost per square foot development projects so many builders simply could not pencil development deals that worked.

The result was a historic shortage in available apartment inventory, which pushed average rent prices to go through the roof. Going forward, legislators can look back on this period of time where little was built and recognize that focusing on streamlining supply and removing obstacles to development is the key to bringing affordability back to Boston. Policies matter. Asking for a ridiculous amount of affordable units when energy and cost of borrowing are high actually creates less affordability because no one can bring on more supply. Supply is the biggest driver of all pricing in the marketplace. Many business leaders agree that lowering affordability requirements to 10 percent or lower would be a good first step in jump starting more development so that both buyers and renters can benefit which has been seen in many other cities with better pro-build policies.

Boston Rental Price Growth Has Levelled Off

Since 2024, inflation has started to cool and rental supply figures returned to pre-pandemic levels.  This has allowed the average rent price in Boston to level off over the past 12 months.  After surging by double digit margins in 2022 and 2023, rent price growth has returned to a more stable level of 2-5%.

Why Are Boston Apartments Expensive?

Boston’s high rental prices are the result of the basic economic principle of supply and demand.  The metro area has a limited supply of rental units that are in high demand.  Whenever the supply is limited, prices will go up.  Similarly, when demand for housing grows, this will also put upwards pressure on rent prices.

It just so happens that in Boston, we’ve experienced both over the past decade, which has fueled an unprecedented surge in rental prices.  Let’s break down the socioeconomic factors that’s leading to both the limited supply of apartments and the growing demand for housing in the metro area. Once we understand the basics of supply and demand – we can focus on creating more supply which in turn will diffuse demand and bring down pricing in a meaningful way.

Limited Supply - Boston’s Apartment Shortage

The apartment rental market recorded historic lows in apartment inventory in 2022 and 2023.  The two most accurate data points we use to measure apartment inventory are real-time availability rate (RTAR) and real-time vacancy rate (RTVR).  The availability rate measures the total percentage of apartments that are available to rent either now or in the future.  This could include a unit that is currently occupied but will become available at a later date, or a unit that is currently vacant and can be moved into right away.  The RTVR is a measure of the total percentage of units that are vacant right now and ready for immediate move-in.  The biggest difference between the RTAR and the RTVR  is that the RTAR can give you somewhat of a forward looking glass of what could be happening into the future in terms of pricing.  High RTAR figures in certain neighborhoods and signal future price reductions and/or incentives that make apartments more attractive to renters.

A look into how RTAR and RTVR has moved over the last 5 years shows several interesting trends.  First, you can see the huge spike in RTAR and RTVR that occurred during the pandemic as a result of remote work and remote learning.  When school campuses and office spaces emptied out, the demand for apartments bottomed out causing both figures to go sky high.

Once campuses reopened and remote work began phasing out, rental demand came roaring back, pushing RTAR and RTVR to levels even lower than we saw prior to COVID.  In 2022, the RTAR hit an all-time low of 0.68% in September, which began a period of rapid rent price growth.  But why did inventory levels go so low after the pandemic?  There are several reasons.

Decline In New Housing Permits

In 2014, the City announced an aggressive plan to add 53,000 new units of housing to the Boston metro area by 2030.  From 2015 to 2020, the city saw a drastic increase in new construction permits issued, adding much needed housing inventory to Boston.  However, the pandemic put a huge roadblock in that progress, and new housing permits have steadily declined since then.  There was also a series of bad policy calls that signaled to developers that Boston was not open for development business in a meaningful way.  History has a way of reflecting itself in data and you can see periods where Boston added housing and when it bottomed out.  It never hurts to go back to what worked in previous years.  Perhaps revisiting past pro-growth policies could bring more housing and cause prices to fall?

It’s no coincidence that as soon as new housing permits decreased, Boston’s average rent price grew rapidly.  We are not taking about a difficult math equation here – it doesn’t require going to college to recognize that supply is what is needed to drive down prices.  This decline in new construction was due in large part to a horribly poor energy policy which caused increases in the cost of construction.

Construction is an incredibly energy intensive industry and high prices disproportionately hurt developers.  The cost of borrowing also went up due inflation which also drove up interest rates and developers faced an increased cost of acquiring working capital, making it hard for new construction projects to become profitable.  Combine that with the: rising costs of labor, higher construction material prices and green building requirements and most developers simply couldn’t make new housing projects add up on paper.

Now that inflation is slowly returning to healthier levels, we will hopefully see the number of new housing permits issued trend back upwards.  Time will tell. The last hurdle to unlocking vast supply will be to either drastically reduce affordability requirements in deals or at least have a temporary moratorium on them for a couple of years to stimulate lots of new construction. The current affordability requirements simply do not work in most economic environments.  Common sense has to prevail in all business decisions and be devoid of adding in virtue signaling or “feel good” but nothing gets built ideologically driven thinking.

Rising Demand for Housing in Boston

Boston has experienced a demographic shift over the past few decades.  What was once a blue-collar city in the 20th century has evolved to become a hub for tech and innovation.  Population has surged alongside median household incomes, bringing with it an increased demand for high quality housing.  Here are the factors driving the demand boom in Boston.

Boston Population Growth

According to data from Macrotrends, Boston’s metro population is currently 4,396,000.  That figure rose steadily from 2000-2020 before flattening out during the pandemic.  Since 2022, population growth has accelerated and is predicted to hit 4,778,000 by the year 2035.

To state the obvious, when the population rises, so does demand for housing.  According to our most basic economic principle, this will cause housing prices to rise.  People want to come to Boston for high paying jobs and innovative industries.  We need to build housing policy that is just as innovative.  Let the private sector lead the way on streamlining and building vast amounts of product so that we can meet our demand.  Stifling or creating onerous requirements for the sake of creating delays only keeps housing costs high.  Clearly it is time for a new direction where government officials meet regularly with both small and large developers to understand their needs.

Increasing Enrollment at Local Universities

Boston is widely considered the #1 college city in the US.  With more than 60 local accredited universities and colleges, the student population in Boston has a huge impact on the local housing market, in particular with apartments as most students living off campus are renters.  From 2013 to 2023, theBoston metro saw a +12.60% increase in total enrollment at local colleges and universities, bringing with it an increased demand for apartments.

Rise in Median Household Income

Another factor contributing to the increase in housing demand is the rise in median household incomes in the metro area.  Boston has emerged as a leader in attracting venture capital for startups in the bio-tech and medical space.  According to data from Pitchbook, Boston ranks as the 3rd largest market for attracting VC funding behind only New York and San Francisco.  In 2024, Boston-based startups raised a total of $4.1 billion dollars in capital funding, bringing with it thousands of high-paying jobs.

As this trend has emerged over the last decade, we’ve seen income demographics shift in Boston. Boston’s per-capita income growth over the last 10 years has exceeded that of the US by a margin of 17%.  During that time, Boston’s per-capita income jumped by +58.67% compared to just +50.06% nationwide.

With these changing demographics comes a change in housing demand. Not only is demand rising due to population growth, but higher income earners are seeking apartments with better amenities and more luxury options. It’s no coincidence that more luxury apartments have gone up in the Greater Boston area than small “mom and pop” offerings. People want what they want and that which they can afford. With all these high paying jobs in Boston comes the desire to spend more on better housing.

This has effectively pushed apartment prices higher. The challenge is to build a massive amount of high quality housing that causes pricing to go down as options increase. Right now it is so difficult to get any properties built in a quick manner that it nearly guarantees a full lease up in a quick manner of any new luxury building brought to market. In other words, legislators aren’t seeing the elephant in the room – which is bad policy is keeping housing prices high. This is a curable problem with pro-growth development policies. Other cities similar to ours such as Austin, Texas have go on the other route and built tons of new supply over the last couple of years and watched their rents drop by 22%!

Conclusion - Boston Is An Expensive City to Rent

As a result of the limited supply of apartments and the rising demand for rental units, Boston has become one of the most expensive cities to rent an apartment not just in the US, but worldwide.  Until the city can effectively meet the challenge of rising demand, it’s likely that rent prices will continue to rise.

The supply issue is a complex one, as Boston is an old city in a small geographical area with very limited space for new development.  The city will have to tackle this challenge with innovative zoning reform that will attract housing developers to build in Boston.  Boston legislators could also be more proactive is selling off land that has been sitting vacant for decades to stimulate housing supply.  Multiple innovative methods are going to be needed as the only way to offset rising apartment prices, as demand for housing in Boston will not decline anytime soon.  We will continue to report on these housing market trends right here on bostonpads.com.