Slew Of New Apartments Pressuring The Housing Market

Too much money with a shortage of good investment opportunities has resulted in a boom in multi-family construction. These new apartment complexes built on cheap money are creating a mess in the housing market. For the last several years we have witnessed a huge number of apartments being built under the idea if we build them, they will rent. This combined with many baby boomers downsizing has caused rising house prices to stall. It also has helped fill the needs of those always needing something new and seeing themselves as too good to move into a place where someone else had lived.

Rising Housing Prices Have Slowed (click to enlarge)

Two things have become clear. The first being many of these apartments are not cheap. Today roughly 80% of new apartment construction is geared towards the high-end luxury market. The second is it is difficult to fill them with quality tenants and the owners are counting on both inflation and time to make them profitable. In this case, a quality tenant is defined as someone who can and will pay the rent on time, follow the rules, keep their apartment clean, not create maintenance issues, and stay for the full length of their lease. Still, oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity. In this case, all the new multi-family construction may be spilling over and dampening demand for older single-family homes.

Interestingly this wave of new apartment construction is another situation where the big boys, also known as the rich and powerful, have the potential to widen the gap of social equality. Our nation's housing policies are feeding this craze and are as much to blame as greed. Many regulations, codes, and factors have been driving the cost of single-family homes higher. There are a multitude of costs associated with owning a home, such as upkeep and real estate taxes simply make it easier for many people to rent than buy. This gives the appearance people are getting more for their money when renting. Keep in mind, these apartment complexes are not being built for the poor and downtrodden or low-income people.

Apartment Construction (click to enlarge)

The idea of young people buying a starter home and later moving into a bigger house was a tradition for years. Today this is far less a factor than in the past. Today with the help of an older family member and low-interest loans a larger percentage of first-time buyers are reaching for the golden ring from the get-go. Unfortunately, the overall number of young people able to afford a home is small. The majority of millennials today have little in the way of accumulated wealth and many are still forced for economic reasons to live with their parents. To make matters worse, when they do move into a home many of these people have little interest or do not have the skills to maintain them.

With so many older homes across America needing upgrades and repair, it is a shame housing policies have not been developed to incentivize some of this money to flow towards older neighborhoods. America has built a lot of housing units over the years, now we must face the fact that they need to be maintained. Instead of focusing and creating policies to rebuild our cities by encouraging homeowners to invest more in upgrading windows, adding insulation and improving the existing housing stock, Washington has doled out low-interest money to Wall Street and apartment developers. This effort to kick-start the economy by building new housing to generate the illusion of growth has long term ramifications.

The government holds huge responsibility for a rising share of our housing problems in low-income situations because its policies avoid dealing with the growing number of tenants that are irresponsible. Government housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments and dumps the rest on the private sector. There is a strong need for simple basic housing that, shall we say, just gets the job done. I contend the best way to address or level the playing field would be to move away from public housing and give those needing housing aid "rent only vouchers" that could be used with any landlord rather than putting these people into a quasi-government ran project.

Old Houses Units Need To Be Maintained

When people leave older residential neighborhoods and move to a new house in the suburbs they in effect hollow out our cities. Adding to our housing problems is low down payments and other policies that put people in older houses that they have no interest or knowledge in how to maintain. This can cause even more people to flee the area bringing about further decay. When offered the choice many people find moving easier than repairing and maintaining their homes or neighborhoods and low-interest rates power this trend forward.  Policies should be geared toward creating jobs that maintain these units instead of making them prematurely obsolete.

By choosing easy answers America has not faced its housing problems with long-term solutions and this bodes poorly for society. Just how long many of these new apartment projects will stand the test of time and add to the feeling of community is questionable. Many are constructed fast and at the lowest cost possible. The name of the game is to get them up and get them rented. While they may look appealing on the surface we have become a society where everything is disposable. It is a sad situation when a front entry door needs to be replaced every ten years which is often the case today. The fact is the long-term ramifications of the Fed feeding cheap money to Wall Street and its minions will shape society and America's housing landscape for decades.


Footnote; While housing prices have stalled this does not mean rents will not move higher. This may be a supply and demand issue but is also driven by escalating costs in other parts of the economy.
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