What is the future of New England’s economy?
Researchers at Boston Fed conference examine region’s strengths, challenges following COVID-19
How will hybrid work, rising housing costs, and an aging workforce impact New England’s economy? Economists and leaders from the public and private sectors explored this question at a Federal Reserve Bank of Boston conference Thursday.
The Bank co-hosted the event, called “Housing, Place, and Flexible Work: The Future of the New England Economy,” with the UMass Donahue Institute and the New England Economic Partnership.
Bank President and CEO Susan M. Collins kicked off the conference by discussing the region’s strengths, as well as its persistent inequalities.
Collins said New England’s highly skilled and educated workforce is one of its biggest assets. But she said many communities – such as smaller cities and rural areas – are struggling with unemployment and sustaining local schools and services. And she noted that large racial wealth and educational attainment gaps remain.
“The region’s economy is healthiest when it is providing opportunities for all to participate, contribute, and prosper,” she said.
Collins highlighted the Working Places program, a key Bank initiative to support regional economies. The program focuses on bringing together residents and leaders in smaller industrial cities and rural areas to tackle issues including poverty, unemployment, and housing.
“If we are to move toward a more inclusive economy over time, the capacity for low-income places to adapt to economic change, which Working Places supports, is ever more important,” she said.
How is New England’s economy changing?
Boston Fed Vice President and economist Jeffrey Thompson said during his presentation that employment rates have returned to pre-pandemic levels after dropping sharply during COVID-19. Meanwhile, since 2020 jobs have shifted away from leisure and hospitality and towards higher-wage industries, such as construction and professional and business services, he said. And he noted job openings remain at historic highs and labor force participation looks to have settled in below pre-pandemic levels.
Thompson said it all raises concerns about whether the regional workforce can fill the jobs of growing industries. He noted that the workforce is highly educated, but New England’s population is much older than the rest of the country.
Thompson also flagged a warning sign in education: Less than half of eighth grade students across New England are proficient in math and reading, and Black and Hispanic student proficiency in these subjects is even lower. That could become a problem, he said, as jobs continue to require high levels of educational attainment and skills.
Thompson added that housing affordability remains a concern in both rural and urban communities, and it doesn’t appear that housing supply is increasing at rates needed to push prices down.
At a glance, he said, data seems to indicate that supply in places like Massachusetts has kept pace with population growth. And in Maine, supply seems to be far outpacing population growth. But Thompson said the picture changes if you include data about how many homes in these places are vacation, seasonal, or secondary homes. In Maine, for instance, in 2019 more than 15% of homes were seasonal, recreational, or occasional use, meaning that remaining housing supply merely kept pace with resident population growth. So, there’s no downward pressure on prices.
Thompson said the future of housing will depend in part on the construction allowed by evolving zoning laws, pointing to recent research by the Bank’s New England Public Policy Center on the topic.
Matthews: Size of labor force will impact employment growth
The future growth of the labor force, population, and housing stock was the focus when Alan Clayton Matthews, associate professor emeritus at Northeastern University, shared projections to 2030 from the Donahue Institute. He noted that employment growth during the end of the current decade is projected to slow considerably due to limited working age population growth.
“Certain sectors in Massachusetts will grow quickly, others will decline, and the overall rate of employment growth will be constrained by the (size of the) labor force,” he said.
During that same period, the institute projects 5.3% growth in housing units. But Matthews added that demand for housing could change depending on how long current hybrid and remote work patterns continue, because that affects the need for people to live close to where their jobs are located.
“If people continue to work more from their homes … then housing demand could be different,” Matthews said.
Panelists share firsthand perspectives on workforce, housing challenges
A panel discussion highlighted on-the-ground perspectives on workforce and housing challenges from policy, business, and research leaders.
Dr. Richard Nesto, chief medical officer of Beth Israel Lahey Health, noted the state’s health care is concentrated in Boston, unlike in other states, which tend to have rings of hospitals throughout the state.
“This concentration of care is producing a huge workforce problem for us as we try to draw employees from outside Boston,” he said. “Because of the very issues that were brought up today, such as housing, we are trying to look at alternatives.”
Chrystal Kornegay, executive director of MassHousing, said the rise of remote work could force us to focus on how we provide opportunities for people who offer services to remote workers. It also may have major impacts on how we plan communities.
“What types of housing do we need (if more people work from home)?” she said.
Daniel McCue, senior research associate at the Harvard Joint Center for Housing Studies, said housing scarcity is a problem throughout New England, with rural areas facing increased pressure. This impacts health care and transportation needs in these communities, he said.
Going forward, he said, researchers must continue to work to figure out how much of the patterns they’ve observed during COVID-19 are here to stay.
Learn more about the conference here.