Apartments have always been able to serve the needs of a diverse renter population. Whether it’s young professionals starting out, empty-nesters looking to downsize, workers wanting to live near their jobs, or families building a better life, apartment homes have long provided people a flexible and inherently affordable housing choice that can meet a variety of needs.
As the number of households renting their homes has reached an all-time high, however, this surge in demand has placed significant pressure on the available apartment supply, making it challenging for millions of families nationwide to find quality rental housing that’s affordable across the income spectrum. Increasingly, we see households spending a great portion of their income on housing, putting a strain on other areas of their budgets and ultimately limiting their future financial success.
This is, without a doubt, a worrisome situation and the reason we see a lot of press dedicated to rising rents. It’s also the reason the National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) were recently invited to testify before a key House subcommittee on the role government regulations play in the cost of housing.
A Widening Problem
The issue of housing affordability is no longer concentrated in the lower income brackets: It’s quickly encroaching on the financial well-being of households earning up to as much as 120% of area median income.
At the heart of this expanding problem is the continued disconnect between rental housing costs and renter incomes. Since 2001, the cost to produce new rental housing has increased 7% while real (inflation-adjusted) median renter incomes have shrunk 9%, according to the Harvard Joint Center for Housing Studies’ most recent State of the Nation’s Housing report.
With costs rising faster than incomes, it’s no surprise that more renters find themselves struggling with rents. In fact, the number of cost-burdened renters—those spending more than 30% of their incomes on rent—grew by roughly half a million from 2013 to 2014, reaching a record 21.3 million. Even more troubling is that over half of those renters are actually severely cost burdened, meaning half their incomes are spent on rental housing.
Although the nation has historically helped cost-burdened renters, the budgets for such federal programs and subsidies are shrinking. Today, only one in four income-eligible renters receives assistance of any kind, leaving millions to try to find housing they can afford in the private market.
Significant Supply Constraints
The multifamily industry is limited in its ability to address income stagnation, but where it can be effective is on the supply side of the affordability equation. Promoting new construction as well as the preservation and rehabilitation of existing apartment stock are three vital ways to meet surging rental demand and loosen the pinch on affordability. However, a number of often subjective and unpredictable barriers to these activities exist, slowing down the market response to housing supply challenges.
Many municipalities, for example, have a development preference that works against multifamily housing production. Multifamily development often faces stiff community resistance from “Not in My Back Yard” (NIMBY) groups who see apartments as a threat.
Multifamily development deals also compete with other forms of commercial real estate that have the benefit of producing sales-tax revenue, something many financially strapped municipalities find more desirable than housing.
Beyond the inherent challenges of getting municipal and community buy-in for apartments, there are also the many regulations that add time, costs, and complexity to every deal. More worrisome, as the barriers to bringing more apartments to market have intensified, policymakers are layering on additional regulatory measures, such as affordability mandates.
More Public–Private Partnerships
Municipalities have the difficult task of efficiently managing their resources to the greatest benefit of their constituents, often while having to balance shrinking budgets and growing needs. However, local governments also have a toolbox of approaches they can take to support affordable housing production.
For example, they can provide incentives to for-profit entities to produce multifamily units at a price point that households can afford. Municipalities can defer taxes and other fees for a set period of time to help the developer reduce the rental price. They also own tangible assets—buildings, raw land, and entitled parcels—some of which can be leveraged to bring down the cost of construction or redevelopment. Finally, they can help streamline the development and approval processes with fast-tracking programs.
America is facing a crisis when it comes to providing our citizens with affordable housing. The bottom line is policymakers must recognize that addressing housing affordability requires a partnership between government and the private sector. The more both entities bring all their tools and assets into play, the greater the likelihood of finding viable solutions to meet America’s housing challenges.