Boston's luxury real estate market is booming, but is that a good thing? A new report from the Institute for Policy Studies, a left-leaning think tank, makes the case that it is not. Chuck Collins is the lead author of the report called “Towering Excess: the Perils of the Luxury Real Estate Boom for Bostonians.” He spoke with WGBH All Things Considered anchor Barbara Howard. The following transcript has been edited for clarity.
Barbara Howard: Your study looks at 12 luxury condominiums across Boston — that's almost 2,000 total units, each worth an average of $3 million, which is not for the average home buyer. What's the problem?
Chuck Collins: Well, there's an upside. We know it's good to have jobs building buildings and tax revenue for the city. But I think there are some perils. One is we think these buildings are actually pushing up land values and consuming a lot of resources that could be dedicated to affordable housing, and that's having a ripple effect on the neighborhoods.
Howard: One of the things you found was that many of these units are not owner-occupied.
Collins: Yeah, the question is, who's buying Boston? And of those 1,800 or so units that we looked at, two-thirds of them don't take the residential tax exemption, which indicates that that's not going to be someone's primary home. And about a third of them are owned by shell corporations, trusts, and other entities that mask who the owners are. So there's also this risk that these are being used as portals for illicit funds and money laundering because we don't really know who's buying them.
Howard: What's the most egregious property out there in terms of not being owner-occupied?
Collins: There are two properties that I would focus on. One is called the Mandarin Oriental Hotel — it’s 51 condominiums near the Prudential Center. Most of those are owned by shell corporations and absentee owners. About 80 percent of them don't take a residential exemption. And then Millennium Tower, which has kind of risen up where Filene's was — 400 plus units, 80 percent absentee-owned, a huge percentage of them purchased with cash, mostly absentee-owned investor properties.
Howard: Is it possible people from overseas, maybe with soft currencies, are putting their money into these buildings - sort of like a bank account?
Collins: Yeah, these aren't people who are looking to buy a house to live in. They're looking for an investment and a way to preserve their assets. And it's pushing up the cost of housing.
Howard: The report also says the companies that own the luxury properties are actually based out of state, in Delaware. What's with Delaware?
Collins: Delaware is the premier secrecy jurisdiction in the United States. If you want to hide who you are and what you're up to, you want to incorporate or organize your corporation in Delaware. So you see everything from money laundering and sex trafficking. Global dictators run their money through Delaware corporations. But then those entities buy properties in cities like Boston. So we found 40 percent of the LLCs that own these luxury houses are incorporated or organized in Delaware.
We just looked at some of the worst buildings in Boston from the perspective of absentee-owned shell corporations, and we found dozens of properties purchased by Delaware LLCs with cash, where you can't know who the owner is and what's going on. That is a red flag. And if we were in Miami, or if we were in New York, the Treasury Department would be investigating that. But not in Boston.
Collins: Because the Treasury Department has an arm called the Financial Crimes Enforcement Network, and they've identified six cities and regions that they're focusing on and looking for those red flag transactions: Miami, New York, Los Angeles, the southern border of Texas, but not Boston. So Boston is attractive right now for illicit funds
Howard: Your study makes some recommendations about how to deal with this. Tell me some of them.
Collins: Well one recommendation is that the city of Boston should protect the residents of Boston. We should tax high-end real estate transactions. We might want to tax vacancies, to discourage these units being left alone. We think the city and the state could require disclosure of beneficial ownership - actually say that if you want to own property in Boston or in Massachusetts, you have to say who you really are. We recommend what I call the ‘public library card test’. If you want to get a library card in Boston, you have to prove who you are and where you live. And that minimal requirement should be true for owning luxury real estate in Boston as well.
Howard: Boston, as we all know, is undergoing a real housing crisis in terms of the average homeowner looking to buy. These are luxury properties, so how would that impact your average Joe looking for a house?
Collins: Here's what I would say: if you look at what's happening right now, we have a luxury real estate boom, and we have thousands of more luxury units coming. They've been approved in the Seaport and in the Fenway and the Back Bay. Ten years from now, we're going to look back and say the city, the skyline, and the demographics of the city have been fundamentally altered. And I think right now the burden is on the city to show how is this not going to harm Bostonians. How is this going to help the affordable housing crisis? How will this not worsen inequality and the racial wealth divide? Those are the key questions.
Howard: Thanks for joining us.
Collins: Thanks, Barbara.
Howard: That's Chuck Collins of the left-leaning Institute for Policy Studies. The Institute is out with a new report called “Towering Excess: the Perils of the Luxury Real Estate Boom for Bostonians.” This is WGBH’s All Things Considered.