Another consequence of a growing economy is that the price of real estate, and therefore the cost of living, is steadily increasing. Not only are rents higher for businesses, but employees’ housing costs are going up as well. That increases the demand for better compensation and, in a tight labor market, if that demand isn’t met, a business risks losing those employees or potential hires.
“The challenge that we are seeing is very high real estate costs, especially for rentals,” Kesler said. “The rental market is very expensive, so this drives up everything, from salaries to cost of living in the state, particularly in the greater Boston area.”
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Natural side effects of rising property and real estate values are that the cost of property taxes increase and businesses think twice before expanding to new locations. Increases in those costs also might get passed on to the consumer, which may affect how much purchasing a business sees over the course of a year. If customers are more hesitant to buy because of price increases, a small business’s bottom line might take a hit.
“If you talk to people in particular neighborhoods, they’re seeing that boom in terms of value of real estate, which is now impacting property taxes,” Segal said. “It’s getting passed through to small business owners, and that’s having a real, material impact on the downtown areas.”