The US Is Facing An Extreme Apartment Shortage, And This Expert Says Little Is Being Done To Resolve The Problem
There is a growing structural supply and demand imbalance in the apartment industry, and very little is being done to resolve the problem. These concerns were voiced by multifamily expert Kevin Finkel (pictured below beside family), chief operating officer and president of Resource Real Estate Opportunity REIT in Philadelphia.
Take into account the soaring demand for apartments due to Millennials, the lack of new construction and the high costs of materials needed to build today, and you can see how the apartment industry has backed itself into a corner.
Kevin, who has been in the multifamily industry for 20-plus years, tells Bisnow the US is not building as many apartments as it was in the past. In the 1970s, roughly 4.9 million apartments were built for 216 million Americans, Kevin tells us, citing stats from the US Census Bureau and Axiometrics. That number has dropped drastically this decade, when it’s estimated roughly 1.9 million apartments will be built for the nation’s more than 320 million Americans.
“Our population has expanded, but the amount of apartments we’re building has shrunk,” Kevin says. “And if we look more deeply, there are bigger issues going on. No. 1 is apartments today are almost exclusively high-end because the cost of construction has increased substantially.”
Where Are The Affordable Apartments?
Construction costs have steadily increased the past decade, jumping by 37%, according to data from the IHS PEG Engineering And Construction Index (ECCI), and materials and equipment costs have increased by 5%. Building requirements are making buildings more expensive, Kevin says, making it difficult for developers to cater to the majority of American’s budgets.
“They’re building for the top 25% of Americans who can afford rent over $2k a month,” Kevin says. “There is some government incentive to build affordable, Section 8 housing for the poor, but when you look to America’s middle class, there is absolutely no building going on for those renters. This is why you see rental rates for Class-B apartments going up faster than all other apartment types.”
The number of American renters is growing, and according to the US Census Bureau, homeownership in the US has dropped to 63% from 69% 10 years ago. One major reason for this shift is the growing demand for apartments from Millennials.
Americans under the age of 30 make up roughly 50% of renters, Kevin says, and there are several factors that keep them from turning to homeownership.
Take student debt, for example. The average college grad has about $35k in student debt. Couple that with the average median income of Millennials after graduation being $40k a year, and you can see how the disproportionate numbers would deter Generation Y from seeking homeownership until debt is paid off. Add to that that job tenure for Millennials is about three years, and you can see why no one’s grabbing up homes.
“This is having a huge impact on the rental market,” Kevin says. “You have all these Millennials and their lifestyle is changing. When moving to a new job every three years you need to be flexible. If you’re unmarried and willing to relocate, it doesn’t make sense to get a house.”