Across large segments of the US rents are rising faster than wages, and that’s putting pressure on more and more households:
Much of the problem is attributable to simple supply and demand. The job market has improved and millennials are entering the labor pool in force, boosting household formation. But in a structural shift for the real-estate market, new households are much more likely to be renters than buyers.
So there are more renters which is putting pressure on the current housing stock and that means rising rents.
“Rents have skyrocketed so much and incomes haven’t kept pace, so we have an affordability crisis in some of our major metropolitan areas for the middle housing market,” said Kenneth Rosen,chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
The squeeze is tighter in some of the “usual suspect” markets like San Francisco and New York, but even markets like Nashville are seeing it too:
Nashville is one city “getting meaningfully more expensive,” saidGreg Willett, vice president for research and analysis at MPF.
Rents there were up 5.1% in the second quarter from a year earlier, well outpacing incomes. According to separate Labor Department data, average weekly wages rose 2.4% in the Nashville metropolitan area between 2013 and 2014.
While builders have been adding new units to the market, most are luxury apartments. In response, the Nashville Metropolitan Council passed a bill July 21 ordering the local planning department to devise a zoning plan that would increase the supply of affordable housing.
If the affordability crunch isn’t addressed soon then we’ll start to see more and more cities try to do what Nashville is doing, but they might find themselves fighting an uphill battle when confronted by NIMBYism from neighborhood groups. This article about San Francisco’s struggle to find a solution to its affordable housing crunch is an excellent primer on difficult a nut this can be to crack. Private sector development is critical to this process, and hopefully cities will work with developers to address these issues, but even if they do there will still be a steep hill to climb with interest groups.
Affordable Housing Management, Inc. has begun construction of a 16-unit community in Greensboro:
Affordable Housing Management, Inc. (“AHM”) announced it recently began construction on Hope Court, a 16-unit supportive apartment community located near the intersection of Gate City Blvd. (High Point Rd) and Holden Road. The property will offer one, two, and three bedroom non-smoking apartments affordable to individuals and families earning below fifty percent (50%) of Area Median Income. Six units will be reserved for households with a disabled or formerly homeless member…
Hope Court is funded by the City of Greensboro, the North Carolina Housing Finance Agency (NCHFA) – Supportive Housing Development Program, and AHM. Additionally, grants were provided by Federal Home Loan Bank of Pittsburgh, Wells Fargo Foundation, Community Foundation of Greater Greensboro and the Lookout Foundation.
From the Triad Business Journal:
The first building of a nearly $20 million upscale complex project currently under construction in Graham is expected to open to residents in September.
The remaining six buildings of the 204-unit Watercourse Apartments are expected to be completed at a rate of one a month, Community ManagerKatherine Matkins said…
It is geared toward commuter residents, said Clifton Minsley of 10 Federal, a Raleigh-based company that will handle property management. Minsley and his brother own 10 Federal and are partners/owners in the deal. The project is owned by a group of local investors.
The general media has noticed a trend that apartment professionals have noticed for a while: Millennials and Boomers coexisting in apartment communities. Bloomberg recently ran a pretty long story about it:
The number of renters who are 65 or older will reach 12.2 million by 2030, more than double the level in 2010, according to research by the Urban Institute in Washington. While the millennial generation born after 1980 has driven demand for apartments in recent years, baby boomers — those born from 1946 to 1964 — will be the next wave, pushing up rents and spurring construction of more multifamily housing.
And the older set becoming renters is a big reason the apartment industry is doing so well:
“It’s a combination of their sheer size and that they’re entering the age range where they increasingly downsize,” Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City, who has also studied the subject, said in a telephone interview. As a result, “it will put upward pressure on rents for all types” of multifamily homes, he said.
Rappaport’s research found that adults in their 50s and 60s accounted for almost all of the net increase in multifamily occupancy from 2000 to 2013. Once members of the baby boom generation start entering their 70s next year and downsize, “multifamily home construction is likely to continue to grow at a healthy rate through the end of the decade,” he wrote in a report published last month.
Some developers are adjusting to address the trend:
Alliance Residential is designing buildings with smaller, more affordable units on ground floors to attract young adults, while creating more spacious apartments on upper levels, said Ian Swiergol, managing director of the developer’s division covering New Mexico, Arizona and Utah. The bigger units feature wine refrigerators and touch-button window screens that appeal to baby boomers with more wealth.
In one extreme example, a 28-year-old man ended up living in the same community as his 90 year-old grandmother, said Swiergol, who is based in Phoenix.
Who knows, maybe we’ll start seeing shuffle boards being built next to the swimming pools and volleyball pits.
Multifamily construction is at its highest level in almost 30 years, but experts expect it to dip in the near future:
New construction of buildings with more than five units jumped 28.6% in June, hitting its highest level since 1987.
But the spike likely has more to do with a surge of activity in New York City last month right before tax incentives for multifamily developments were scheduled to expire.
“We have to expect a big correction in July,” Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a note to clients.
If you read the entire article you’ll see that single family construction is also on the rise, but the growth is relatively mild compared to multifamily construction and that trend is likely to hold for the foreseeable future.
The Wall Street Journal has an interesting story about the growing popularity of rent-to-own offerings:
Rent-to-own programs, once run mainly by small operators, were popular with cash-strapped consumers during the 1990s. They faded a decade later when easy lending made it possible for almost anyone to buy a home with no money down, but with lenders setting a higher bar, they are making a comeback.
For investors, it is a chance to profit off the recovering housing market. Consumers get a chance to lock in a home before they have the money together for a down payment. But the price may be higher rent in the interim and a higher purchase price the longer they wait to move from renting to owning…
Here’s how Home Partners’ program works. A consumer teams up with a real-estate agent to select a home in one of Home Partners’ approved communities, which tend to be suburban locations with strong school systems and with homes priced between $100,000 and about $725,000. Home Partners buys the home and leases it to the consumer, who has the right to purchase the home from Home Partners within five years in most places. During the renting years, the consumer is expected to repair his or her credit and save for a down payment, but the longer they rent the more they will pay to acquire the house.
For example, a house shown on Home Partners website has a list price of $449,975 in Chula Vista, Calif. The family that agrees to rent that house from Home Partners has the right to purchase the home for $472,035 after one year and would have to pay $573,762 if it waited five years before purchasing, a markup of 28% from the initial list price.
The Carroll Cos. has once again expanded its local apartment portfolio with the purchase of Signature Property Group’s NorthPoint Apartments in north High Point:
Developer Roy Carroll announced today that his company has purchased NorthPoint Apartments, located at 4375 Regency Drive in north High Point, for nearly $26.5 million, or $91,965 per unit.
The 288-unit upscale community was completed this summer and sits on 16.74 acres near I-40 and the Piedmont Triad International Airport along N.C. 68. Guilford County tax records indicate that it has a total assessed value of nearly $16.9 million.