Employment in New England grew at only a 1-percent annual rate during the 12 months ending in June 2001, to 7,087,000 jobs. This gain of almost 72,000 jobs is considerably less than the 1.5- to 2.0-percent annual rates of growth in the late 1990s. The lower level of job creation and increased layoffs by some high-technology firms are evidence of some uncertainty in the New England economy. Nevertheless, all six States registered job gains, with Massachusetts and Maine registering job increases of 50,100 (1.5 percent) and 6,400 (1.1 percent), respectively.

During the 12-month period, an increase of 15,400 construction jobs partially offset the loss of 25,000 manufacturing jobs in the region. Commercial and residential construction markets have been very strong.

After bottoming at 2.4 percent in January 2001, the unemployment rate in the region increased to 3.2 percent in June 2001. Maine and New Hampshire recorded small decreases in their unemployment rates, driven by economic activity expanding from the Boston area into southern and coastal New Hampshire (Portsmouth) and southern Maine (Portland).

The economic slowdown has affected business travel and tourism in the Boston area. According to industry sources, occupancy in the Boston/ Cambridge hotel market was down 10 percent in May 2001 compared to a year earlier. This decline was primarily attributable to a reduction in business travel; however, there were also early indications that the leisure travel market was a bit softer than in 2000. Total occupancy projections for the year are being revised down somewhat but are still expected to be in the 75-percent range with a 3.5-percent
increase in room rates. The average room rate increased to $200 in 2000, a 6.3-percent increase from the previous year.

Through June 2001 residential construction, as measured by building permits, was down 5.8 percent in the region compared to the same period in 2000. This decrease was fairly consistent throughout the area with the exception of Rhode Island, where units permitted were down by 15 percent, primarily due to lack of multifamily development. Single-family construction declined 8 percent, with Connecticut and Massachusetts off 12 and 10 percent, respectively. Multifamily activity rose more than 10 percent with Connecticut, Maine, and Massachusetts showing gains. Rhode Island and Vermont recorded very low levels of multifamily activity despite continuing tight rental markets. The Stamford-Norwalk and Hartford metropolitan areas account for virtually all multifamily development in Connecticut, and the Boston and Worcester areas account for 90 percent of multifamily construction in Massachusetts. Given the limited resources; the lengthy planning, regulatory, and approval processes; and the current status of interest rates, the region is producing new units at its maximum capacity, with totals slightly down from the recent peak of 48,000 units permitted in 1998.

During the first quarter of 2001 sales of existing homes in the New England States were mixed. Connecticut and Vermont declined 7.2 and 14.3 percent, respectively. Massachusetts and Rhode Island remained unchanged from the same quarter a year ago, and Maine and New Hampshire increased slightly, at 4.1 and 0.6 percent, respectively. The net change was a decline of 1.1 percent for the region (to an annual rate of 290,500 sales), remarkably strong given the limited available inventory and the changing (and moderately increasing) interest rate environment. The southern New Hampshire and Maine markets continue to be strong with little indication of abatement.

The New England region continues to record substantial increases in sales prices. According to the Office of Federal Housing Enterprise Oversight, for the first quarter of 2001 New England ranked first in the Nation in price appreciation with an increase of 12.4 percent from the first quarter of 2000. New England States occupied almost half of the top 12 rankings, ranging from 13.6 percent in New Hampshire to 9.8 percent in Connecticut. Only Vermont, at 6.7 percent, fell below the U.S. average rate of 8.8 percent. The Boston metropolitan area median sales price as of the first quarter of 2001 stood at $345,100 (a 13.9-percent increase), second only to the San Francisco area.

Although job growth has slowed recently, most rental markets in New England continue to be very tight. Limited supply, along with persistently high levels of employment, has created unprecedented occupancy levels at all rent levels. Most metropolitan areas report rental vacancy rates in the low single digits. The tight market conditions are driving turnover rates down as well.

The call for affordable housing in the New England States has become a call for increased production of rental housing regardless of pricing. Problems are particularly acute in areas with seasonal markets (of which there are many in New England) where significant incomes and asset growth during the last several years have not only kept rental market costs high but also resulted in the conversion of many previously rented units to second homes used exclusively by owners. This reduces the supply even further.

Spotlight on Portland, Maine

Since the early 1990s, Portland’s growing economy and attractive environment have been significant drawing factors. The area’s population increased by 22,442 persons (10.2 percent) to 243,537 between 1990 and 2000; households increased by 13,090 (15.1 percent) during the same period.

The Portland economy continues to grow and attract expansions, new businesses, and migration. For the 12 months ending June 2001, employment increased at an average annual rate of 3 percent (4,600 jobs) to a total of 154,500. One-half of these new jobs are in business services industries. With annual employment growth at more than 3 percent annually between 1995 and 2000, Portland has enjoyed the highest growth rate in the Northeast, according to
DRI-WEFA rankings. The Portland area also benefits from a lower cost structure and lower wage rates, giving it a competitive advantage in New England and the Northeast overall. Additionally, a high quality of life and an advanced telecommunications system provide support for relocating high-technology firms. From a high of 6.1 percent in 1991, the unemployment rate has declined each year to 1.6 percent for the 12-month period ending June 2001.

Commercial real estate markets are booming. All resources, including new construction, rehabilitation, adaptive reuse, and public infrastructure projects, are addressing the growing demands of the business markets. The vacancy rates for office space in both the downtown and suburban markets are less than 2 percent. During the last few years rents for Class A office space have reportedly increased by 15 percent annually, reflecting strong demand.

Since the recent peak of 1,622 units permitted in 1998, residential building activity has declined slightly during 1999 and 2000. The total for the first 6 months of 2001 is the same as in 2000, when single-family permit activity declined 13 percent. A major issue in residential construction in the Portland area is a lack of skilled labor as evidenced by the extremely low unemployment rate.

The sales market in the Portland area has been strong recently, bolstered by the strong economy, migration, and relatively limited production levels. Sales in 1998 and 1999 averaged 2,750 homes annually. Activity declined to 2,500 homes in 2000, a 9-percent drop, due to a declining inventory of available listings. Sales in the first quarter of 2001 declined 5 percent compared with the first quarter of 2000. However, sales prices continue to increase in the double digits. From 1999 to 2000 the average sales price increased 14 percent to $165,364. Sales in the first quarter of 2001 averaged $168,250, up 10.7 percent from the first quarter of 2000. The NATIONAL ASSOCIATION OF REALTORS ^® reported that the median price of an existing home sold in the Portland area increased 12.9 percent to $120,000 from the first quarter of 2000 to the first quarter of 2001.

The local rental market has become very tight, and local sources report a serious shortage of available rental housing in Portland and the metropolitan area. The 2000 census reported a 3.6-percent rental vacancy rate for Portland; however, a recent city survey indicated a vacancy rate of 1 percent in apartment buildings with three or more units. There have been very few new rentals developed in the Portland area since 1990. Permits have been issued for only 729 units, half of these within the city itself.

With an emerging economy, considerable investment in downtown and the waterfront, and changing demographics and lifestyles, the rental housing demand has increased much faster than the supply. The resulting lack of affordable rental housing has become a significant political issue, along with the concern about urban sprawl.

The Maine State Housing Authority is offering $18 million in low-interest and no-interest loans to encourage the development of affordable rental housing in Portland and southern Maine. These loans are expected to support 200 units, of which 20 percent must be affordable to low-income households.

A recent Brookings Institution report cited the Portland area as depicting the worst level of sprawl in the Northeast, based on a comparison of relatively low population growth and a very high rate of forest land converted to urban uses. These growth and housing policy issues are of great concern to the Regional Council of Governments and the individual planning boards of Portland and the surrounding municipalities.