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Apartment Supply Needs to Reach 4.6 Million by 2030, Report Says

NAA, NMHC Releases Vision 2030 Study

By Dave Sorter | Tuesday, July 11, 2017

Apartment supply-affordable

Part I of a two-part series on the NAA and NMHC’s “Vision 2030” report. 

One of the myths disseminated about the current state of the apartment market is that too much supply has been added in recent years – especially in 2017, when almost 400,000 new units have been identified for delivery, according to research by RealPage, Inc.

That expected completion volume would be the highest in decades. And new apartment construction won’t slow much from there. Supply levels are reaching more of a plateau than a peak, according to multifamily permit volumes and individual planned projects tracked by RealPage. An annual average of about 320,000 units are scheduled to be added to the nation’s largest 100 markets from 2018-2021.

While some urban-core areas where apartment supply is concentrated may initially struggle to absorb the large number of upcoming completions, the nation’s apartment market will still be undersupplied. The nation needs 4.6 million new apartments in the next 13 years to meet demand, according to the “Vision 2030” report released in June by the National Apartment Association and the National Multifamily Housing Council.

New apartment supply report

If the RealPage-forecasted pace of 320,000 new units a year is sustained through 2030, total deliveries would fall moderately short of 4.6 million new units needed by then. Meeting the NAA/NMHC goal would require nearly 20,000 additional units per year. The kicker to the industry organizations’ number is that these new units can’t all be Class A, luxury apartments. Their position is that rental housing must be available to those at all income levels.

“We agree that much more apartment supply will be needed by 2030, as long as the new units are in the right place at the right price points,” said RealPage Chief Economist Greg Willett. RealPage has supported other NAA and NMHC research projects, especially as a founding member of the NMHC Research Foundation. RealPage did not directly fund the Vision 2030 project.

The fact that building apartment properties is expensive – especially with the cost of materials and labor rising – is well known. That’s partly why most new units are at the high end of the rent scale. But the Vision 2030 report documents a host of policy changes municipalities and other agencies can make to help reduce the cost of building apartments.

“Outdated zoning laws, unnecessary land-use restrictions, arbitrary permitting requirements, inflated parking requirements, environmental site assessments and more discourage housing construction and raise the cost of those properties that do get built,” the report states. The agencies also mention impact fees, inspection fees, property taxes, inclusionary zoning mandates and rent-control measures as detriments.

The NAA and NMHC advocate an end to NIMBYism – the “Not In My Back Yard” view that has resulted in opposition to many new apartment projects. “NIMBYism…keeps apartments from being built where they are needed most and at prices many people can afford,” Vision 2030 states.

Among the governmental actions the NAA and NMHC propose are:

  • “By right” development, in which local officials approve projects without discretionary reviews, provided they comply with zoning laws and community development plans.
  • Fast-track review and permitting for properties that include “affordable” units.
  • Reduce requirements that require a certain number of parking spaces per unit – or even eliminate them in parts of town well-served by public transportation.
  • Relax density rules for properties with a set number of affordable units.
  • Adopt separate building codes for rehab units to lower the cost of bringing an old building up to current codes.
  • Create public-private partnerships to buy and develop underused land into affordable housing
  • Give property-tax abatements and waive fees for properties including affordable units.
  • At the state level, implement legislation that overrides local zoning laws concerning projects that contain affordable apartments.

These proposals would likely lead to some interesting debate in city councils, planning and zoning commissions and state legislatures. They also assume that developers and investors will build or buy lower-priced units if the costs of construction and rehabilitation are reduced.

“With the right mix of policies and strong partnerships between local governments and independent developers, we can bridge the gap between the cost of building and operating apartments and the amount of rent lower-income and middle-class households can afford,” the report concludes.

Vision 2030 highlights programs in Seattle, New York, Denver, Massachusetts and Rhode Island as ones that address some of the issues above. If other cities and states do adopt one or more of the proposals above, those 4.6 million new apartments by 2030 may not be a pipe dream.

Part 2 of this series will look at the agencies’ list of high- and low-barrier cities, as well as other metro-specific information.

Dave Sorter

Dave Sorter

Journalist

Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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