Page 22
— Multifamily Properties Quarterly — July 2015
Market Driver
I
t would be an understatement to
say that these are good times for
the apartment industry. For most
in the industry, they are probably
the best in their lives.
Capital is abundant and growing
demand is outpacing increases in sup-
ply even as new units come on line.
And there’s reason to believe there is a
significant amount of pent-up demand
still to come into the market.
To the outside world, though, it
all consolidates into one conclusion
– rents are rising. Metro area rents
were up 13 percent year over year as
of April, according to the Apartment
Association of Metro Denver.We have
seen the headlines around the coun-
try and locally about double-digit rent
growth.
Our success makes us easy targets
for inclusionary zoning or rent-control
proposals championed often by well-
intentioned advocates seeking to
address the affordability gap.They hear
about rising rents and want a solution,
often unaware of the real costs and
unintended consequences of many of
these so-called easy and no- or low-
cost solutions – namely, even higher
rents and less supply.
So, how should we, as an industry, be
talking about rents and affordability?
First, today’s strong rent growth is a
temporary situation in what is a highly
cyclical market, driven by factors large-
ly outside of the industry’s control.The
collapse of the U.S. financial markets
in 2008 virtually shut down new apart-
ment construction for several years,
severely constricting supply at a time
when rental demand was about to
surge.
Second, apartment construction is
ramping up. As those units are deliv-
ered, rent growth will moderate. But
even with more apartments in the
pipeline, construc-
tion activity remains
below the level
needed to meet ris-
ing demand.
Many nonfinancial
obstacles to new
development, such
as unnecessary and
duplicative regula-
tions, outdated
zoning policies and
not-in-my-backyard
opposition to apart-
ments, continue to
stifle new construc-
tion and raise the
costs of the prop-
erties that are built, contributing to
higher rents for our residents.
Third – and this may be the most
important fact – America’s affordable
housing shortage is more than just a
housing problem. It is not only the fact
that rental housing is more expensive
to produce and operate, but also there
are other economic factors that have
suppressed household income growth.
Housing affordability is really about
housing costs in relation to income.
On an inflation-adjusted basis, median
renter household income today is
virtually the same as it was in 1981.
Because income stagnation is such
a large part of the equation, we sim-
ply cannot build our way out of this
affordable housing shortage. In fact,
in many markets where demand is
strongest, even if, hypothetically, devel-
opers agreed to take no profit, the cost
to build still exceeds what people can
afford to pay.
In addition, housing affordability is
an issue for homeowners (and would-
be homeowners) as much as it is for
renters.This is often overlooked by
media who spotlight rising rents, but
cheer rising house values.
When we compare Denver renter
and owner affordability by income cat-
egories (so that similar households are
compared), we find strikingly similar
affordability burdens for each group.
For example, if we compare renter
households and owner households
earning 80 to 99 percent of area medi-
an income, we find that 33 percent of
renters are paying more than 30 per-
cent of their income (U.S. Department
of Housing and Urban Development’s
benchmark for cost-burdened house-
holds) and 31 percent of owners are
doing the same.This pattern, as shown
in the chart, reinforces the notion that
our housing affordability issues are not
just a renter issue.
A long-term solution to rising rents
requires meaningful income growth
and the removal of many barriers to
apartment construction. State and
local governments have a number of
tools available, and the federal Section
8 voucher program could also be better
leveraged to address today’s affordabil-
ity issues.The preservation of existing
affordable housing also is critical. By
finding ways to keep more properties
as a viable part of the overall apart-
ment stock for longer, we can add to
the available supply of housing, thus
reducing the pressure on rents.
This is the message the National
Multifamily Housing Council is taking
to policymakers at all levels. And it’s
one we hope apartment firms will help
spread as they talk to reporters as well
as state and local officials.
Through the use of advertising tools,
national, state and metro area eco-
nomic impact data, and the creation
of an interactive apartment economic
impact calculator at weareapartments.
org, renters and industry professionals
are educated and remain current on
the multifamily housing market.
s
Kim Duty
Senior vice
president, public
affairs, National
Multifamily
Housing Council,
Denver
