Today, Curbed has a great summary of a recent report on affordable and rental housing in the US, that comes out of the annual Harvard report on rental housing. The report and the piece are full of eye-opening charts and data, but here’s just a sample:
Compared to ten or twenty years ago, a much larger portion of new apartment construction is built for high-end renters. This has a lot to do with where these new units are being built. There are many more renters than there used to be, more of them are wealthier, and many more of these units are in expensive central cities. (It also makes sense given inflation.)
There are lots of possible results of this trend. One common debate I’ve seen is whether or not new high-end apartment construction causes nearby rents to go up or down. To my mind, the answer depends on the scale at which you look at housing, the relative supply and demand for housing in a city, and how much faith you put in market forces to fill housing needs for people.
The key point of the piece and the study here, however, is that this shift in the rental market is happening at the same time as subsidies and support for people in poverty is shrinking.
Here’s the conclusion from Patrick SIsson’s Curbed piece:
This lack of updates or additions means much of the affordable stock is what’s charitably referred to as “naturally occurring affordable rentals,” or older buildings that have often become cheaper due to aging and obsolescence. Only a fifth of existing units rent for under $850 a month, and nearly half of those were built before 1970. The lack of construction has meant our building stock as a whole is aging. The median age of an occupied unit in 2015 was 42 years, a stark difference from 1985, when the average age was 23.
While the price of construction materials is out of the hands of local policymakers, they do have a number of lever to pull to get more affordable units built: they can “determine the amount of land available for high-density development, the process needed to gain approvals, and the characteristics of housing that is allowed—all of which help determine the amount, type, and cost of the housing that is built,” according to the report. While the affordable housing challenge has many causes, this report offers evidence that it should continue to be a top issue locally and nationally for years to come.
Worth reading the whole thing!
It may be difficult to assess the effect of self-driving cars, but land use changes will be part of that factor.
Tell me more about what you mean, Bob!
If you think that new high-end construction causes nearby rents to go up (impossible, but I will accept your premise), try this exercise.
In those situations where it does cause rents to go up, would the subsequent demolition of those high-end units cause rents to go down?
Dan,
High end construction has the following effects on nearby housing: it raises underlying land values, raises average and perceived market rents in the area, encourages investment in older housing (the stainless steel appliance – granite countertop phenomena), and raises the potential rental value of nearby housing.
So yes, building new luxury rentals can raise nearby rents when, as now, there is an imbalance in supply and demand.
Your comments seem to reflect assumptions about rental market scales I see often on this site – the assumption that building more housing (even if high priced) will lower rents.
For example, building luxury apartments on the Greenway may lower rents by a few dollars in Brooklyn Park (by addressing some the rental housing shortage in the market), but they will cause rents to rise in Uptown for the reasons listed above.
What the charts here confirm on a national basis is probably also true in the Twin Cities – if you are replacing existing housing (probably less units per lot) with new housing (probalby more dense) the market forces that result in significantly more expensive housing means the new construction is driving less affordability, not more.
Put another way, a household who might have bought a McMansion in Plymouth 20 years ago would now rather rent a two bedroom luxury apartment in the North Loop or Uptown.
As to those effects: nope, maybe, nope, and maybe.
It’s possible that new luxury housing has an amenity effect such that surrounding properties become more desirable – although I’m skeptical it’s the housing per she and not ancillary investments that are the cause. But it’s just as likely that the new luxury housing is being built because there’s demand for it, which will fuel just as much renovation without the new units.
Uptown is exactly the example. That’s demand-driven, not supply-driven. Don’t build and rents rise even faster. Exactly because of the household in your last paragraph. It’s the location that makes them want to live in Uptown, not the new units.