Depletion of Affordable Rental Housing Stock Could Hurt Sunbelt, West

Apartment demand is rebounding in 2023 Q2 as rent growth cools “rapidly,” according to a report by RealPage. “Net absorption came in just shy of surging new supply levels in 2nd quarter 2023, stabilizing occupancy rates after a precipitous decline in 2022,” the firm said.

Which makes sense from a basic economics perspective. When prices moderate, demand can grow. But what happens when rental prices leap/?

That’s the situation in affordable housing at a time when the stock has faced challenges for years. Because the final timeout on a 30-year tax credit could mean the owners of the estimated 188,000 affected units will sharply increase rents to make up the lack of tax credits, as the Wall Street Journal reported.

While the move could maintain profits for landlords who might no longer see the tax advantages they’ve enjoyed, it could ironically rebound for areas in the Sun Belt and West.

Early this year, Moody’s Analytics reported that the average rent-to-income ratio had reached 30%, the definition of being rent-burdened, for the first time in the 20 years the company has tracked the data.

In a further analysis, Moody’s noted that between 1999 and 2022, rent growth of 135% clearly exceeded 77% income growth. At the beginning of the period, only one metro area, New York City, saw a median-income renting household spend almost 54% of their income on an average-priced apartment. By 2010, there were four metros where that was true, and by the end of 2022, the number was seven: New York, Boston, Northern New Jersey, Los Angeles, Palm Beach, Fort Lauderdale, and Miami. Half of the 10 most rent-burdened metros were in the South — Miami, Ft. Lauderdale, Palm Beach, Orlando, and Tampa-St. Petersburg.

The Sun Belt has seen significant growth of population and business from the migration of people and companies from gateway cities, due in large part to perceived lower costs of living and doing business. But increasingly rent costs are growing, threatening affordable housing stocks, even if they aren’t in the top ten most expensive list. About 20% of tax-credit-built apartments could lose affordability protections by 2027, according to Moody’s. Houston could also lose a significant amount of affordable housing.

People who need affordable or workforce housing play important roles in society, often performing lower-paying but necessary jobs that help sustain the economic infrastructure. If they can’t afford to live, they will have to move elsewhere. Those making more money won’t shift to jobs cleaning streets, stocking shelves, and serving food, eventually causing people to question their quality of life.