AUSTIN – (By Dale King, Realty News Report) – The “Great Recession” that seriously impeded the real estate industry for what seemed an interminable period from 2008 to about 2010 has not yet been totally committed to the history books.
The weighty interval of financial chaos that rivaled the 1929 Depression is still taking a toll on the U.S. rental market, a speaker told an audience at the recent National Association of Real Estate Editors (NAREE) conference in Austin.
In fact, Caitlin Sugrue Walter, Ph.D., vice president of research, with primary responsibility for examining apartment industry trends for the National Multifamily Housing Council (NMHC), said two analysts who scrutinized the status of available rental property in 2022 determined that 4.3 million apartments “at a variety of price points” must be added to current inventory by 2035 “to keep up with demand”
The task at hand also includes the elimination of “a 600,000-unit shortage [caused by] underbuilding after the 2008 financial crisis,” she said.
Walter told the NAREE audience that in 2008, “everything shut down,” resulting in the “chronic underbuilding that created the shortage of 600,000 units.”
The timing of that construction halt was particularly bad. “This was the time when Millennials were coming into young adulthood and were most likely to rent. But they couldn’t get financing.”
The research, conducted by Hoyt Advisory Services and Eigen10 Advisors, LLC, says “locations that require the most inventory [to meet current and future needs] are Dallas-Fort Worth, Houston, New York, Phoenix, Austin and Atlanta. Dallas-Fort Worth needs 19,000 units a year to keep up,” said Walter. “Austin needs 8,000 a year.”
During her nearly half-hour address that examined apartment shortages and affordability, she highlighted the negative and positive aspects of the ongoing effort to re-establish sufficiency in the rental marketplace.
“We are at a historic level of apartment completion,” she said. “In 2023, 438,500 apartments of five units or more were finished, and we are on track this year to complete 577,000.” While this will help alleviate deficiencies, she said it appears the number of permits issued for new rentals “is slowing down.” Latest statistics show 429,000 permits given to developers and construction started on 332,000 units.
“The vast majority of completed units are Class A and Class B” – the more expensive leased residences. “We’re not hitting the low price point.” Affordable rentals – Class C and D, for example — must also be part of that solution.
This led her to a discussion of “filtering.” She explained: “Filtering is the aging and obsolescence that produces naturally occurring affordable rental homes.” When newer units come onto the market, the price of older, existing leasable properties normally drops.
But two researchers, Dr. Dowell Myers and Dr. Jungho Park, found that between 1990 and the “Great Recession” of 2008, “new construction of middle- and high-income housing enabled older middle- and high-income housing to become more affordable” — the true definition of filtering.
But in the post-Great Recession era, “the slowdown in new construction led to the opposite situation developing,” or what Walter called “reverse filtering.”
Right now, she said, “it appears filtering is taking place as it was intended – with a few exceptions. But we are in a dicey situation. Because of the economy, we are at risk of running into reverse filtering again. Interest rates are making it hard to find financing. A prolonged period of financial uncertainty is drying up some deals.”
She concluded her talk with a return to matters of affordability and the availability of money to finance construction projects. She tied in other issues such as rising insurance costs, delays in delivery of building supplies, even fraud, which she said “is another problem for property providers. It’s a really odd phenomenon.”
Walter emphasized that the focus of the research department at NMHC is to “provide knowledge to help solve affordability problems” and to help make sure that “everyone can afford a home they want at the price point they want.”
July 17, 2024 Realty News Report Copyright 2024
Photo: Courtesy NAREE
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