'Frozen' Households Hindering Apartment Market

Rising inflation, including the higher-than-expected report this week, has again cast an eye on housing prices. The country’s housing supply continues to be below what is ideal, according to Caitlin Sugrue Walter of National Multifamily Housing Council (NMHC).

She spoke Oct. 13 at the National Association of Real Estate Editors national conference in Atlanta, discussing the housing supply situation today and what factors will play in meeting its demand, extending to 2035.

Sugrue Walter said amidst demographic shifts and lingering pandemic-impacts on the population and broader economy, 4.3 million homes are needed by then, according to a new study commissioned by the NMHC and the National Apartment Association.

After a solid run since 2021, in July, the housing industry’s pace began to decline, according to the NMHC Quarterly Survey of Apartment Conditions, a compilation of factors that measure home development.

“We’ve seen rent growth decelerate for the past two quarters, including by 10.4% in the third quarter,” she said. “We expect this downward pace to continue. Rent is a lagging indicator in BLS data so expect this fall-off to not show up in the CPI reports for a while.”

There were 737,000 apartment homes under construction in 2021, which is a “good” level, but it is taking longer than usual for those homes to come online. The industry has seen two consecutive quarters of negative absorption rates.

In a recent NMHC survey, 85 percent of developers said they are facing construction delays, many because of supply chain issues, but also because of rising interest rates that are creating unsteady conditions.

“Apartments need refrigerators, for example, to gain a certificate of occupancy, and appliance deliveries are stalled in many cases,” Sugrue Walter said.

Households are ‘Frozen’

Sugrue Walter said, “Currently, we see households as frozen. Members are not making big life changes, resulting in a move. And those that are, are doubling up more frequently because of affordability.

“Teleworking has also created indecision. Some are waiting to see what their return to office policy is – there is one at all. This is also creating delays in those thinking of changing jobs.

“Vacancy rates have been lower than normal, if not at unhealthy levels. A healthy level is around 5% and there’s been movement higher toward that number lately.”

The demand research showed that between 2015 and 2020 the country lost 4.7 million apartment homes based on affordability level (rents priced below $1,000 per month).

“Since 2020, we have to think that number has risen given recent economic conditions,” she said.

The Detriment of NIMBYISM and Rent Control

NIMBYISM is another negative factor for housing growth.

“It is annoying and expensive,” Sugrue Walter said.

A recent NMHC/NAHB survey showed that 74.5 percent of operators had to deal with it. Fighting it takes time and money, she said.

These battles have resulted in a 5.6 percent average increase in development costs and a 7.4-month delay in construction, NMHC reported.

“We are supportive of voluntary, well-written inclusionary zoning policies that work, as opposed to blanket policy statements that don’t,” Sugrue Walter said.

Other policies that have proven beneficial are the Emergency Rental Assistance Program (ERAP) and fully funding the voucher programs.

“What doesn’t work is rent control,” she said. “It often can go to those who don’t need it – such as in New York City – and it can cause owners to delay necessary maintenance and prevent renters from moving out to take better paying jobs elsewhere.”

The rate of rent caps isn’t as telling as when jurisdictions put them in place not knowing what’s going to happen next, she said. For example, “in St. Paul, Minn., that city enacted them and then saw apartment development grind to a halt there. Now they are trying to decide their next move.”