The dark days of the apartment market recession are officially over. While there are no recognized landmarks for determining which phase of the cycle we might be in, from my perspective it is clear that the national apartment market is in an expansion phase.
The apartment industry fundamentals continued to improve in 2006. Concessions were largely eliminated and, on average, rents increased slightly more than the overall rate of inflation. This is the first time that's happened since 2001.
Demographic fundamentals look extremely positive over the long term for the apartment industry. Thanks to the echo boomers — my children, and the children of other baby boomers — the prime renter population of 20- to 34-year-olds will increase by 3.5 million over the next five years. The strong levels of immigration that are expected to continue also will contribute to new demand for rental housing. The pickup in demand combined with a steady but not reckless pace of new construction in most markets has led to firmer occupancy rates and stronger rent growth.
The affordability problem
In spite of the good news, we must always be vigilant about our nation's affordable housing problem. According to Harvard University, nearly one in three households spend 30% or more of their annual income on housing. This is untenable, and the National Multi Housing Council (NMHC) has made it a priority to help the industry identify market-based solutions and best practices to address the affordable housing shortage.
We're trying to help political leaders understand the tools they have available to address the affordability problem; tools such as lowering regulatory barriers to creating new housing, establishing land banks and housing trust funds, and reforming the Section 8 Housing Choice Voucher program.
It's simple economics. Demand for affordable housing is nearly limitless, so more supply of affordable housing is a win-win situation. But various regulatory barriers imposed by state and local governments — barriers such as impact fees, density restrictions, outdated zoning laws and inflexible building codes — hinder the creation of affordable housing.
Elected officials can help. They can and should revise unnecessary and outdated laws that increase the costs of providing affordable housing. Fortunately, we don't have to fight this battle alone: the broader business community desperately needs housing for its workers, so it has a powerful incentive to help.
Together we can persuade politicians to fast-track affordable housing proposals, to create more incentives for developers, and to stand up to those who instinctively cry “Not In My Back Yard!” whenever anyone uses the word “affordable.”
State and local governments have tools to reduce what it costs to increase the supply of new housing. One option is land banks, which allow counties to acquire abandoned or dilapidated properties at a discount from the market value, usually because of unpaid back property taxes, and to return them to use.
Housing trust funds, whose proceeds can only be spent on affordable housing, can be effective. These dedicated funds can support new construction with loans, gap financing and land buydowns, or they can be used to supplement rent payments. More than 250 jurisdictions have created such funds, using revenues from real estate taxes or fees, developer fees and other taxes. NMHC is urging Congress to create a federal housing trust fund.
On the national level, Congress can help by reforming the Section 8 program. Section 8 is one of the most effective programs ever created to meet the housing needs of America's low- and moderate-income families, and it does not need a major overhaul.
But if the program's regulatory requirements were less onerous and the funding more reliable, even more private apartment owners would be attracted. Congress also should reverse the erosion in the funding of the program in recent years, which has resulted in the loss of more than 100,000 vouchers nationwide.
In short, 2006 was a great year for the industry and the near-term outlook is bright. While there has never been a better time to be an apartment professional or investor, there has never been a more important time to be an advocate for the creation of more affordable housing.
Doug Bibby is president of the National Multi Housing Council in Washington, D.C. For more information, visit www.nmhc.org.