Imagine 2 million houses and apartments just disappearing from the American landscape. As dramatic as that sounds, that's exactly what happened between 1993 and 2003, according to the Joint Center for Housing Studies at Harvard University.

On the surface, that sounds like great news for landlords. Diminishing supply means the number of remaining rentals becomes even more limited, particularly in some areas of the country. Consequently, apartment owners can expect to see higher rents and growing revenues.

What's the problem with that? Here it is: Many of the units lost are of the affordable variety, which is often the only housing that the next wave of renters–namely, echo boomers, immigrants, and even many seniors–can afford, according to housing experts.

Brian Hubble

Serving this increasing group of renters represents a huge business opportunity for landlords, but between today's high construction and land costs, it's incredibly difficult without subsidies to build moderately priced replacement housing at reasonable costs in the cities and suburbs where the jobs, and the renters, are.

"The declining supply of the entry-level product is creating a gap where an increasing number of our citizens are being forced to pay more for housing than they can afford," notes Tom Bozzuto, president and CEO of The Bozzuto Group in Greenbelt, Md., and a longtime advocate on housing issues. "That has a whole bunch of social and economic development issues. For communities to thrive, they need a balanced housing stock."

Mixed Losses

Remember that 2 million figure from the Harvard Joint Center? On a yearly basis, that breaks down to an annual loss of 200,000 rentals a year. That's a lot of housing, and it comes in all sizes and shapes.

Some of the vanished are subsidized units. Others are market-rate. A portion of the disappeared are due to the demolition of outdated and dangerous big-city high-rises in the name of urban renewal. In other cases, viable suburban or urban apartments are being taken for other uses, such as condo conversions or higher-density residential, especially near mass transit. Or the lost property may just be an eight- or 10-unit structure in the countryside that provides much-needed affordable hometown housing to a handful of elderly renters on fixed incomes.

Not all of this housing is worth keeping. "There's nothing wrong with losing some of the housing stock we're losing because much of it is inadequate for the lifestyles of people in the twenty-first century," Bozzuto says.

But other properties–both apartments and rental single-family homes–are threatened because of mediocre maintenance, which often comes from a lack of money. "At some point, if you have a 30- or 40-year old property, you have to put money in it," says Denise Muha, executive director of the National Leased Housing Association, a Washington, D.C.-based organization that represents the private and public participants in the affordable multifamily rental housing industry. "If the funds aren't there or the will isn't there, you will eventually lose these to deterioration."

Aging isn't the only way to lose affordable stock though. For subsidized units operated under programs such as HUD's Section 236, project-based Section 8, or low-income housing tax credits in good locations, owners have the option of making their units go market-rate. According to Muha, about 250,000 units have been lost during the last eight years as owners have opted out of these affordable programs.

In hot spots, formerly subsidized rentals can even become for-sale housing. "They can now convert these to condos and make a lot more money, be completely deregulated, and be done with the property," says Vincent F. O'Donnell, vice president for preservation at Local Initiatives Support Corp., or LISC, a New York-based group that helps lineup financing to keep older housing stock on the market.

Of course, losing rental stock to condos isn't just a problem in the subsidized arena. Jack McCabe of McCabe Research and Consulting says South Florida rental inventory has plummeted from 174,995 units in 2002 to 104,714 units in 2005. Nationally, Real Capital Analytics, a New York-based firm that tracks apartment sales, reports that 200,000 rental units were bought for the purpose of conversion last year.

Losing these apartments and rental homes wouldn't hurt quite so bad if developers could build something new to replace them. But with land costs and construction costs escalating, that's next to impossible at the moment. "The best way to increase affordable housing is to go back in time and build more new stuff," says Mark Obrinsky, chief economist and vice president of research for the National Multi Housing Council. "You can't do that."

The low-income housing tax credit helps, but not enough. The 90,000 units it produces yearly covers fewer than half of the 200,000 units lost each year. "We are losing affordable housing units faster than we're creating them," O'Donnell says. "It's certainly reasonable to consider that a major problem."