What Does Multifamily Housing Development Tell Us About Affordability?

In recent years, housing affordability has emerged as a key issue that is affecting low-income renters, as well also millions of middle-class renters. In a traditional housing market, the older stock becomes less desirable as it ages. This is due to general aging, wear and tear, and newer units being built. However, this process doesn’t go as smooth without a sufficient supply of new multifamily construction. 

A new study from Apartment List found that the share of rental units has hit new lows. The lack of construction has resulted in older units becoming more valuable and being able to command higher prices.

Aging Rental Stock

Since 1980, the share of rental units that are 10 years old or younger has been steadily declining, while the share that is over 30 years old has steadily increased. The portion of rental units less than 10 years old is currently at an all-time low. As of 2016, 66% of rental units are more than three decades old. This is the highest share since the Census began tracking this data in 1960. 

Sun Belt Metros

Old buildings are making up an increasing share of rentals in the 25 largest U.S. metros, but the effects are greatest in the Sun Belt. Since 2000, the share of rental units that are over three decades old has increased by more than 20 percentage points in nine of the 25 largest metros, all located in the Sun Belt.

The Importance of Aged Housing

A healthy supply of aging buildings plays a crucial role in ensuring that cities and neighborhoods thrive. As buildings age and construction costs are fully paid off, the value depreciates due to normal wear and tear. The top of the line units of yesterday become the budget-friendly options of today. Economists refer to this process as filtering.

Where Issues Exist 

Filtering is not a guaranteed outcome. When multifamily housing construction slows down and newer units aren’t frequently hitting the market, the value of the older units increases. Apartment List finds that since 2000, rents have actually been growing the fastest among the oldest building cohorts, which usually tend to be the most affordable.

For more information, see the whole study here: https://www.apartmentlist.com/rentonomics/older-buildings-losing-affordability/