Did You Just Double Dip?

This post is a little more personal. I live in a Boston neighborhood that 45 years ago reached its zenith in terms of actual families with kids living here, like many urban neighborhoods around the country. The neighborhood is full of triple-deckers - turn of the century house with three floors - built primarily to house established immigrants (mostly Irish in our case) and their extended families and/or boarders. Basically, the guy who built my house worked at a local brewery and I assume was about 30 years old, had saved some cash, and had this house built. He then probably moved in with his wife and kids, and I'm sure an aunt, uncle, grandparent and ol' Francis who needed a place to stay. There were probably 18 people living here when it was built. Today there are 9, and it's really meant to be 7.

In any event, about 45 years ago, the people in the neighborhood left for the suburbs. More accurately, the children or grandchildren of the first generation to move in here moved to the suburbs. This loss of bodies, i.e. taxpayers and children, was a huge blow to the city and the neighborhood. Schools declined with them the neighborhood in general. Which made more people leave. We all know the story.

The houses then became rentals, usually to students in the nearby universities. The disproportionately high number of students puts these strange ripples into the economy. First, the rents are paid by a third party (the student's parents). So a four-bedroom apartment is being rented, in effect, to at least four - perhaps even eight - incomes. And they are incomes of moderately well off people - I mean, their kids are going to college. Somewhat expensive colleges too.

So this purchasing power is amazing. Say each family that sends their kid to college has an income of $100,000. That's like someone with a $400,000 salary renting that apartment. And the price of anything is what the market will bear. This is essentially renting to the same people that shop at Louis Vuitton when they need a new handbag.

Put that next to a family of four that does well, say, brings in $70K a year. There is no comparison, even at that level.

The triple decker has three apartments in it. Each has usually 4 bedrooms. Each bedroom goes for about $800 a month - putting it on par with a dorm room. So your typical triple-decker brings in $9600 a month. This makes the defacto price of a triple decker about $950,000 (the mortgage of which would be paid for in the rent money, leaving a little each month for maintenance).

This prices out that family of four even more. I suppose they could buy the triple decker at $950,000, live in the top floor and rent out the two other floors. But that means that they are effectively paying $3200 a month in rent. Which is impossible for a family making $70K a year.

This ripple in the housing economy further denegrates the neighborhood and the city, if you go by the notion that familes with children need be of a good population proportion in order to grow economically and address social instability.

So here's the kicker. The neighborhoods that this sort of market has been affected most are the areas around Northeastern, Wentworth Institute of Technology and Boston University. The majority of students from these schools are from...the suburbs and exurbs of Boston. Produced by parents whose parents and grandparents who moved out there from...the neighborhoods where the students now live.

Fool me once, shame on you. Fool me twice, shame on me.