Apartment developers need to build 4.3 million units across the country over the next twelve years to meet demand, industry groups estimate, with about 40% of that construction needed in California, Florida and the United States. Texas.
Those three states will need 1.5 million new units by 2035, according to a study released Wednesday by two multifamily advocacy organizations. The projected number of US units needed to meet demand includes an estimated shortfall of 600,000 units due to underconstruction in the aftermath of the Great Recession, as well as declining affordable rents.
The United States lost 4.7 million affordable units, which are classified as units that rent for less than $1,000 per month, between 2015 and 2020, according to the study commissioned by the National Apartment Association and the National Multifamily Housing Council.
“Put simply, we don’t have enough housing,” Bob Pinnegar, NAA president and CEO, said in a statement. “It is time to step back from decades of underconstruction and instead pursue responsible and sustainable policies that not only meet this demand, but address the missing middle and loss of affordable housing.”
Discoveries come as apartment construction is expected to slow this yearwith rising interest rates and construction costs that remain elevated while historic increases in rent growth wane.
Apartment construction has generally increased from a low point in 2010 following the Great Recession, which hit a low of 134,295 units, according to CoStar data. That was well below the drop in 2020, when units under construction were around 700,000 in the third quarter. There are now 826,190 units under construction.
Although the groups exist in part to drive demand for their industry, their argument that there is a shortage of affordable apartments is consistent with what housing advocates and elected officials have been saying for some time. Officials in the state of California, which has the largest homeless population in the country, have argued that more needs to be done to promote the construction of affordable housing, as cities like Los Angeles, San Francisco and San Diego have struggled with this problem.
CoStar data shows total apartment inventory is nearly 18.4 million units and is expected to grow to around 20.1 million units in five years, an average of 320,000 units per year . At this average rate, the United States would reach the 4.3 million units needed by 2035.
Property developers often point to the ongoing obstacles to obtaining the rights to build apartments through government processes that can be swayed by local residents with a vision not in my backyard.
“At the local level, NIMBY attitudes need to be educated that new multifamily housing does not mean low-income households will overwhelm the community,” said Jay Lybik, national director of multifamily analysis for CoStar. “Nearly half of all apartment renters are single people and the lack of rental options available only makes life more difficult for those working in your community with longer commute times, housing costs higher and, in some cases, the migration of people necessary to make a community thrive.”
The study revealed that immigration is a major driver of demand. Immigration had slowed before the pandemic and remained low. “A reversal of this trend would significantly increase the demand for apartments,” according to the study.
The study factored a 3.8% increase in home ownership into the apartment demand figures.
New home sales have plummeted as mortgage rates rise on top of steadily rising home prices, creating affordability challenges for many homebuyers. They are now choosing to continue renting rather than buying, which has kept apartments full and rents higher.
Rents in many major cities across the country plummeted at the start of the pandemic as people left urban areas for other parts of the country as businesses sent people home to work.
Then, rents rebounded significantly last year, with many cities seeing double-digit rent growth at levels exceeding pre-pandemic demand.
The Biden administration has sought to address the affordability problem by rewriting rules on how cities and states can use US bailout funds to create more affordable rental housing, targeting those earning 65% or less than the median income of a region.
Some states are also tackling housing shortages by offering incentives to apartment developers. California, the most populous state in the country, set aside hundreds of millions of dollars to help transform underutilized office space into housing.
Secondary markets are expected to account for the majority of demand for needed apartments by 2035, according to the NAA and NMHC study. Application for apartments in Boise, Idaho; Austin, TX; Las Vegas, Nevada; Raleigh, North Carolina; Orlando Florida; and Phoenix, Arizona, is expected to grow at least twice the national rate of 1.1% per year through 2035.
“We need a massive supply of new homes for sale and for rent” across the country, NMHC chief executive Doug Bibby said in a statement.