Well positioned for near-term recovery, Boston is starting to address impediments to development and the city’s high cost of living in order to facilitate longer-term growth.

The Boston metropolitan area, with 4.5 million people living in 1.7 million households, is a major U.S. economic engine. With a gross domestic product of about $300 billion, Boston is the ninth-largest metropolitan-area economy in the nation, generating 2.4 million jobs. The city is home to major international corporations, including 11 Fortune 500 companies.

Intellectual capital is at the core of Boston’s economic strength, and innovation runs throughout the region’s history. Since its inception, Boston has constantly evolved—from maritime industries to manufacturing, national defense, high technology, financial services, and biotechnology. Today, the results of this heritage of innovation include a collection of many of the nation’s top universities, a leading-edge health-care sector, a renowned biotechnology cluster, a highly educated and high-income workforce, and top cultural amenities.

Unlike during the 2001 recession, when technology hubs like Boston and San Francisco were hit more severely than other cities—Boston losing 6.9 percent of its jobs, compared with 2 percent for the nation—the city’s job losses in the current downturn have been far shallower than those in most other metro areas. In this cycle, while the nation’s economy expanded through excesses in the housing and credit markets, Boston, with its diverse economy and supply-constrained real estate market, grew at a more moderate pace. Consequently, while national employment as of November had declined by 5.2 percent since December 2007, Boston metro-area employment had declined by only 2.7 percent.

In the near term, Boston’s employment levels show signs of bottoming out and are poised to be on the leading edge of recovery. However, while Boston is relatively well positioned, near-term employment growth will be modest. Following usual cyclical patterns, job gains will lag increased economic output. Still, positive signs emerged in the second half of last year. Health care and education, two sectors that helped buffer Boston during the downturn, continued to contribute strong job growth, as did professional and business services, including the technology sector. Overall, Boston metro-area employment is predicted to begin rising slowly this year and return to pre-recession levels by late 2012.

Standing in contrast to Boston’s economic strengths is another key factor in its economic profile: slow population growth. Since 1970, while the U.S. population has risen at an average annual rate of 1.1 percent, population in the Boston metro area has grown at less than half that rate, 0.4 percent. Boston’s slow population growth, however, tied in part to its cold climate and its real estate development constraints created by geography and local zoning policies, is not unlike that in the metro areas of Chicago, New York City, and Philadelphia.

For global cities like Boston to thrive in the knowledge economy, they need to attract and retain abundant, highly developed human capital. Key attributes for attracting and retaining educated and skilled people include high-quality educational resources, safe streets and communities, strong public infrastructure, plentiful cultural amenities, and reasonable and fair taxes. In aggregate, Boston possesses major advantages across these categories.

For instance, in addition to being the home of perhaps the world’s greatest concentration of colleges and universities, Massachusetts is ranked second in the nation by US News & World Report in quality of public high schools. The Boston area also is home to a concentration of leading private and parochial schools. Of the 49 U.S. metropolitan areas with more than 1 million people, Boston’s violent crime rate is 12th lowest. With the fifth-largest public transit system in terms of ridership, an international airport located near the central business district, a major deep-water port, plus major highways and rail lines, Boston has high-quality multimodal transportation infrastructure, though deferred maintenance on bridges and other infrastructure is a serious issue that needs to be addressed. Boston’s breadth of cultural and entertainment options makes it a top-ten U.S. tourist destination and helps it attract the resident numbers required to fuel the economy. Plus, belying the “Taxachusetts” label, the local and state tax burden for Massachusetts residents puts the commonwealth in the middle of the pack among all states.

But Boston does face hurdles for long-term economic growth, with cold winters and a high cost of living topping the list. The latter challenge—Boston’s costs rank ninth among America’s 361 metro areas— can be addressed through state and local planning and economic development strategies. The largest component in cost of living is housing. At about $360,000, Boston’s median home price in 2008 ranked eighth highest among all major U.S. metropolitan areas, behind only Honolulu, New York City, and five California cities. Similarly, Boston’s median rent ranks seventh highest. The high cost of living is a bottleneck that the Boston area must address in order to enable robust economic growth.

Boston’s expensive housing is a problem driven primarily by short supply. Inconsistent and often restrictive zoning in the 100 or so cities and towns in the Boston metro area have significantly constrainedcelebrated housing in terms of both volume and variety. Although Boston and Cambridge are considered models of walkability and mixed uses, in the suburbs a patchwork of no-growth policies and large lot requirements caused residential development to leapfrog gradually out to Interstate 495—30 miles (48 km) from the center city—in a sprawling, low-density pattern.

Over the past decade, though, a confluence of demographic trends and enlightened regulatory efforts has been changing the development landscape. Two key demographic segments—baby boomers wishing to age in place in or near their hometowns, and members of generation X seeking a suburban environment but loath to sacrifice cosmopolitan amenities—have driven demand for higher-density, transit-oriented, mixed-use product. In addition, regulatory initiatives have been established to enhance regional coordination and facilitate smart growth patterns. Two recent state programs illustrate the commitment to improved zoning and development patterns—Chapter 40R, which grants municipalities financial rewards for adopting special zoning districts for smart growth development, and the Growth Districts Initiative, which allows for the expediting of commercial and residential development within designated areas.

Recent building permit activity reflects the increasing diversity of housing product in the suburbs. Though in the 1990s only 16 percent of all building permits issued in the Boston metro area were for multifamily product, that percentage jumped to 46 percent for 2000 to 2005, and to 63 percent in 2006 and 2007. This is seen as not just evidence of builders returning to the city: if Boston and Cambridge are excluded, the number of multifamily permits in the metro area still jumped from only 15 percent of all permits from 1990 through 2001 to 47 percent for 2002 to 2006.

Overall, with its high-quality education offerings, health care sector, biotechnology cluster, infrastructure, and cultural amenities, as well as its highly educated and high-income workforce, Boston appears well positioned for near-term recovery and longer term growth. Its wealth of intellectual capital and its culture of innovation should enable it to adapt and thrive as shifts occur.