America’s housing developers have been hard at work in the past three years. But their labor has only exacerbated the affordable housing crisis that afflicts most of the country’s population centers.
Out of every five multifamily rentals built in the country’s biggest cities from 2012 to 2014, four were luxury apartments “that command rents in the top 20 percent of the market,” the Wall Street Journal reported Wednesday. The 82 percent figure that real estate researchers at CoStar Group came up with in its analysis for the newspaper is an average of data from 54 separate metro areas. The percentage is even higher in some cities from the list, such as Atlanta’s 95 percent luxury construction rate from the three-year period.
Part of this comes from a natural business dynamic involving new construction. A fresh building is always going to rent for more than an existing one. But the premium that people have to pay to live in newly-built housing is far higher today than it’s been in previous economic cycles. Where new rentals used to command a 9 percent higher rent on average than older ones, buildings finished since 2010 have charged a 21 percent premium over existing housing stock, according to another real estate research firm cited by the Journal.
There’s no malice afoot in developers’ behavior. They’re simply going where the money is. Federal funding for affordable housing construction and rental subsidies has tanked in recent years even as demand has spiked. As fully half the renting public faces rents higher than the 30 percent of income that housing experts define as affordable, Republicans in Congress are trying to make it harder for federal dollars to go into affordable housing development.
Beneficiaries of America’s widening wealth inequality are ever-ready to outbid one another and pay up for fancy digs. Absent a sufficient incentive to cater to people with need rather than people of means, private developers gravitate toward luxury-style construction. The resulting market behavior fuels the crisis that most renters face. A 2014 analysis found 90 different American cities where the median rent was unaffordable on the median inhabitant’s income. Rents are climbing by 6 and 7 percent annually in places like Seattle, Charleston, and San Francisco, but economic prosperity in those cities isn’t lifting everybody’s boat. The median income nationwide grew by exactly zero percent from 1990 to 2012, but rents rose nearly 15 percent in the same window.
Some local and state lawmakers have tried to counteract the decline in construction incentive funding and rental assistance money at the federal level, with varying outcomes. New York City Mayor Bill de Blasio (D) wants to require developers to pledge minimum levels of affordable housing construction before permitting projects targeted at the wealthy. But one recently-opened apartment complex in the city illustrates the perils and insufficiency of such an approach. Nearly 90,000 low-income people applied for just 55 affordable units in a high-rise building where they would be required to enter and exit using a separate “poor door.” And even those targeted units are far too expensive for families at the poverty line.
In California, lawmakers are taking a contrasting approach. Rather than rely on zoning policy to push developers into building affordable units they’d otherwise neglect, Democrats in the Assembly want to use the real estate transactions of the rich and famous to directly finance construction of living spaces for the less-advantaged. The plan would tack a $75 fee onto certain documents required in real estate transactions and put the money into an affordable housing trust fund. The state is currently about a million units short of meeting the demand for affordable housing. Other states have had success using similar fees to create a permanent, renewable source of affordable housing money.