CREJ - Multifamily Properties Quarterly - November 2017
Renting is at historically high levels, and despite all the cranes in major metro areas across the country, including Denver, supply is simply not keeping up with demand. Nationally, the U.S. will need 4.6 million new apartments by 2030, according to a new study produced by Hoyt Advisory Services and commissioned by the National Multifamily Housing Council and the National Apartment Association. Hitting that number will require an average of at least 325,000 new apartment homes every year; yet, on average, just 244,000 apartments were delivered from 2012 through 2016. The last time the industry built more than 325,000 in a single year was 1989. To add to the challenge of accommodating 4.6 million apartment households, as many as 11.7 million existing apartments could need to be renovated or risk being lost from the stock. The research, which examines rental demand in all 50 states and in 50 major metro areas, finds that Colorado will need 100,000 more apartments by 2030, and 56,000 of those will be needed in Denver. •Surge in demand. We’re experiencing fundamental shifts in our housing dynamics, as more people are moving away from buying houses and choosing apartments instead. Every year for the past five years, the U.S. has averaged 1 million new renter households, a record amount. There are several factors behind this surge. Much has been written about the millennials, and it’s true that more than 75 million people between 18 and 34 years old are entering the housing market, primarily as renters. But renting is not just for the younger generations anymore. Increasingly, baby boomers and other empty nesters are trading single-family houses for the convenience of rental apartments. In fact, more than half of the net increase in renter households over the past decade came from those aged 45 or older. Demographics are driving meaningful lifestyle changes that are being expressed through our housing choices. In 1960, 44 percent of all households in the U.S. were married couples with children – the prime drivers of homeownership. Today, it’s less than one in five (19 percent), and this decline is expected to continue. Immigration also is an important factor. Approximately half (51 percent) of all new population growth will come from immigration, and research has shown that immigrants have a higher propensity to rent and typically rent for longer periods of time. •The supply gap. In a perfect market, the private sector would step up and fill the growing demand. But anyone who has ever developed an apartment property knows there is no such thing as a perfect market. Land shortages, local regulations, complicated permitting processes and more conspire to make it difficult for developers to deliver the necessary supply. They also drive up prices that make delivering apartments at a wide range of prices nearly impossible. The NMHC/NAA-commissioned research also ranked the top 50 metros to identify cities where it’s hardest to build new apartments with a Barriers to Apartment Construction Index. Denver ranked in the top 10, coming in at No. 9. If Denver is serious about addressing its housing shortage, it will need to take a hard look at the obstacles that are delaying or increasing the cost of new apartments. •Policies to bridge the gap. While the number of new apartments built each year has been rising, it hasn’t been enough to meet current demand and make up for any possible shortfall at certain price points in the years following the recession. This imbalance between high demand and limited supply options has driven down affordability and reduced housing options for renters. We’ve seen that firsthand in Denver, where average metro rents are up $700 per month since 2004. For many reasons, building apartments has become costlier and more time-consuming than it needs to be. Over the past three decades, not only have hard costs like land and materials risen sharply, but regulatory barriers to apartment construction also have increased significantly, most notably at the local level. These obstacles to development, such as outdated zoning laws, unnecessary land use restrictions, arbitrary permitting requirements, inflated parking requirements, environmental site assessments and more, discourage housing construction and raise the cost of those apartment communities that do get built. In addition to the research, NMHC and NAA also released a report called Our Vision 2030, a set of recommendations for policymakers at all levels of government on how to increase housing production and lower its cost. The report notes the toolbox of approaches states and localities can take to address the apartment shortage and help reduce the cost of housing. First and foremost, they can adopt local public policies and programs that harness the power of the private sector to make housing affordability more feasible. Some of the options explored in the report are: • Establish “by-right” housing development; • Expedite approval for affordably priced apartments; • Reduce parking requirements; • Establish density bonuses to encourage affordable housing development; • Adopt separate rehabilitation codes; • Counteract not-in-my-backyard movements, commonly referred to as NIMBYism, with an efficient public-engagement process; • Leverage underutilized land; and • Waive fees for properties with affordable units. •Unleashing economic potential. What’s good for renters is good for everyone. A shortage of affordable housing is a drag on local economies. Moreover, the new apartment construction Denver needs will boost the economy in the coming years. The combined direct and indirect contribution of 100 existing apartments in Denver, including the local spending of those renters, is $3.8 million and 38 jobs supported. This is not just a problem for today. By 2030, the affordable housing crisis will become even more severe unless public and private sector leaders take bold, innovative action. The future apartment demand research and Our Vision 2030 are available at www.WeAreApartments.org. Visitors also can use the Apartment Community Estimator – or ACE – a tool that allows users to determine the economic impact of a given number of apartment units in 50 metro areas.