NMHC: Rising Vacancy Rates No Reason to Stop Housing Development

The current short-term lessening of apartment demand is no reason for the industry to ignore the long-term trend that the country needs more housing, according to a post by the National Multifamily Housing Council (NMHC) last week.

After a tremendous, multi-year run of rent growth, tents have fallen due to slowing demand in the latter part of the year because of economic uncertainty and increasing vacancy rates, NMHC said.

“Households are doubling up, moving back home or deciding not to create new households at all,” the group said.

It suggested several efforts at the federal level to improve the country’s housing shortage.

Quick Fixes are Not Fixes

“To ensure that supply is built, however, we need to avoid the lure of ‘quick fixes’ like eviction moratoriums and rent control,” NMHC said.

“These do nothing to address the underlying supply shortage. More importantly, they eventually harm the very people they are trying to help by discouraging new housing construction and limiting the financial resources owners have to maintain existing housing.”

The group said that, furthermore, “NIMBYism and antiquated, discriminatory land use policies have shut us out of some communities altogether. But even in communities that want and desperately need new apartment development, we face numerous hurdles that can drive up costs or halt development.

“While the barriers to housing production and preservation are primarily within the purview of local governments, federal policymakers can play a role by creating incentives for local leaders to reduce barriers and adopt policies that encourage private sector investment in housing.”

What the Federal Government Can Do

• Expand and enact federal tax credit programs that ease development affordability, such as the Low-Income Housing Tax Credit and the Middle-Income Housing Tax Credit;
• Reform and increase funding for subsidy programs that address housing affordability, including HOME, Section 8, FHA Multifamily and CDBG; and
• Provide regulatory relief to reduce development and operating costs by tying other federal dollars (such as transportation funding) to incentivizing localities to reduce parking and other land use requirements, streamline the development and approval process and restrict the use of rent control and mandatory inclusionary zoning.

Vacancy Rates Rose in Q3

RealPage’s national vacancy rate for professionally managed apartments rose from 2.4% in 1Q 2022 to 4.1% in the third quarter.

CoStar reported a 30-basis point increase in the national apartment vacancy rate in 3Q 2022.

Apartment owners have begun to offer lower rents to fill those vacant units,” NMHC writes.

Apartment demand is expected to rebound long-term with improved economic confidence, which means “we need to keep building new housing despite this temporary lull if we want to avoid large rent increases in the future,” NMHC said.

Recent research from NMHC/National Apartment Association found that the US needs to build 4.3 million apartment homes by 2035 to meet both future demand and an existing shortfall of 600,000 units.