The majority of new multifamily construction is focusing on the luxury market, and it's causing rents to soar across the country. In fact, the Wall Street Journal reports that of the 370,000 multifamily rental units built between 2012 to 2014 in 54 U.S. metropolitan areas, 82 percent were in the luxury sector.
This emphasis on high-end rentals is causing an affordability gap for renters in many metro areas. A new report released by the National Low Income Housing Coalition found that there isn't a state in the country where someone earning either the state or federal minimum wage could afford a market-rate one-bedroom apartment. This echoes a recent study by the National Association of REALTORS® that found the gap between rental costs and household income is widening to unsustainable levels in many parts of the country.
It doesn't appear than rental costs in major cities will go down any time soon. In some areas, including Denver, Tampa, Baltimore and Phoenix, a staggering majority of new multifamily construction targets high-end renters. Around 95 percent of new apartments build in Atlanta are in the luxury category.
"I don't believe there ever has been a time where we have produced so much luxury rental housing," says Susan Wachter, professor of real estate at The Wharton School of the University of Pennsylvania. Low rental inventory in many cities means that middle-class and young renters have no other choice but to rent these luxury units simply because there aren't other options.
The high cost of rent in many cities has housing advocates concerned that the middle class is getting priced out. Cities have previously offered tax breaks and incentives to try to get developers to focus on building moderate-and lower-priced units. But now, experts say, the federal and local governments may need to consider targeting more subsidies not just to low-income, but also to middle-income renters.
"If cities become places where only the very high-income households can afford to live…that’s going to be a problem for the businesses that want to locate in those cities," Ingrid Gould Ellen, faculty director of New York University's Furman Center told the Wall Street Journal.
Source: "New Luxury Rental Projects Add to Rent Squeeze," The Wall Street Journal (May 20, 2015)
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