A tale of two cities, multifamily housing edition
“It was the best of times, it was the worst of times.” I think of that oft-quoted phrase from the opening paragraph of Charles Dickens’s “A Tale of Two Cities” when reading articles about the 2021 multifamily housing market.
In terms of the “best of times,” the market for market-rate apartments is hitting historic highs. According to Realtor.com’s most recent Monthly Rental Report, the U.S. median rent price rose 8.1 percent year-over-year, and 3.2 percent, month-over-month, to a new high. Forty-four of the 50 largest metro areas broke records for prices. According to Real Page, with apartment shortages occurring across much of the country, rents are climbing at the fastest pace in decades.
The country’s average monthly rent has reached $1,513 — topping the $1,500 mark for the first time. Pushing rents upward, occupancy is now in line with the all-time highs of the early 2000s. Today’s occupancy rate is at 96.5 percent, a figure last registered in the last half of 2000.
Now let us consider how affordable housing constitutes the “worst of times.” On July 14, the National Low Income Housing Coalition (NLIHC) released “Out of Reach 2021: The High Cost of Housing,” its annual report documenting the gap between renters’ wages and the cost of rental housing in America. The report asserts, “In no state, metropolitan area, or county in the U.S. can a worker earning the federal, prevailing state, or local minimum wage afford a modest two-bedroom rental at fair market rent by working a standard 40-hour work week.”
Out of Reach 2021 also shows that only in 218 of more than 3,000 counties nationwide can a full-time minimum wage worker afford a one-bedroom rental at fair market rent without dipping into income that should be used for all other living expenses.
The reader might ask, how does what is happening in the high-priced, market-rate apartment market have anything to do with affordable housing, especially for low- to moderate-income families and seniors? There are several answers to that question:
- As even those with higher incomes get squeezed out of higher-priced apartments, they are renting less-expensive apartments, causing those rents to rise.
- The same holds true for each income group as they move down another quality/location level. It’s something of a chain reaction.
- A large percentage of institutional investors are aggressively buying B- and C-quality apartments, dramatically improving them with expensive upgrades and then raising rents to a level that many existing tenants cannot afford.
- If it weren’t for government-sanctioned programs such as tenant- and project-based vouchers and the Low-Income Housing Tax Credit, the crisis of homelessness would be even more severe.
Finally, all types of housing have faced challenges from the past decade, beginning with the Great Recession and leading to the coronavirus pandemic that brought the world to its knees. Add to this potent mix the injustice of systemic racism and it becomes incumbent on the housing industry to intensify efforts going forward.
Evidence from numerous studies clearly demonstrates the benefits accrued when people are adequately housed — health improves, children do better in school, employees are more dependable, people experience less depression, crime rates fall. So why isn’t it obvious to everyone in government that we need to take drastic action? I’ve previously called for a “Marshall Plan for affordable housing” and still believe that something similar is needed.
Many in the Biden administration and Congress recognize the need, but others still do not. Several bills are making their way through the House and Senate, such as the Affordable Housing Credit Improvement Act, and gaining bipartisan support. But more resources must be allocated if we are to give all Americans clean, safe, affordable homes — which should be a basic human right.
The Joint Center for Housing Studies at Harvard University, in the executive summary of its annual study, The State of The Nation’s Housing, for 2020 wrote: “The nation’s failure to live up to its long-stated goal of a decent home in a suitable environment for all has never been clearer — particularly in the lack of affordable rental housing and unequal access to homeownership. Today’s crisis conditions call for a re-envisioning of national housing policy.”
Yes, in many situations, housing in America today truly can be characterized as a tale of two cities.
Richard F. Burns is president, CEO and trustee of the nonprofit affordable housing organization, The NHP Foundation, with offices in New York, Washington and Chicago. He has more than 40 years of experience as a real estate investment professional.