There’s no denying that the cost of living continues to increase. The price we pay for food, transportation, clothing, shelter, airfare — virtually all goods and services — is on the rise. And like every other sector of the economy, housing providers and the more than 40 million Americans who live in apartments are facing steep costs.
But why exactly are rents rising and what can be done to help stabilize housing costs? A number of factors that affect the housing market make it impossible to pinpoint exactly when the rental market will stabilize, but here are some important insights into what’s driving our nation’s housing dilemma.
A significant imbalance
Rising rents are largely a byproduct of limited supply and high demand across the rental market. Today, rental housing demand is sky-high — with a record 97.6 percent occupancy rate — as three generations are choosing to rent, including baby boomers who are interested in downsizing, millennials and recent Generation Z college graduates. Further, new household formation is on the rise after two years of tamped demand due to the covid pandemic; three years’ worth of graduates are emerging to find rental housing, and households that may have condensed during the pandemic are beginning to disperse as individuals look for their own homes.
Our nation is also facing a decades-long supply and demand imbalance. We need to build 328,000 new apartment homes at all price points each year just to meet the current demand, yet that level of construction has only occurred five times since 1989. Further, a significant portion of the nation's housing was built before 1980 and requires considerable investment and capital improvements to remain operational. Current challenges like severe undersupply, labor shortages, inflationary pricing and supply chain delays are further raising costs for housing providers and presenting challenging barriers to building and rehabilitating housing.
The white-hot housing market — fueled by shortages of all housing types, including single-family owner-occupied homes — continues to push up costs for mandatory operational expenses like property taxes and insurance premiums. Housing providers must cover these expenses to keep their rental properties available for residents, which means rents may need to be adjusted to keep up with the operational expenses and overdue capital improvements.
There is no solitary solution that will immediately address our housing shortage, but there are steps that can be taken to set us on the right path.
Reducing regulatory burdens and encouraging the rehabilitation and development of all housing types will help secure the nation’s aging stock and enable more homes to be built to meet demand. The Biden administration has recently announced a multifaceted plan that will help our nation address housing challenges head-on, by encouraging zoning reform — 75 percent of residential land is zoned for single-family use — and deploying new financing tools to build and preserve both market-rate and affordable housing.
Additionally, we must address the lack of affordable housing for low- and moderate-income families by reforming and improving the Section 8 Housing Choice Voucher (HCV) program. By overhauling and investing in this program, we can create an effective solution for getting people into homes that they can afford.
Looking to the future
While there is no exact date when we can expect rents to stabilize, the industry and its residents can expect some relief as global supply chain issues are addressed and access to necessary building materials is increased. That, in addition to an increase in skilled laborers, will help strengthen the labor market and reduce construction and maintenance delays currently hampering the housing supply.
The first step to solving any problem is understanding the problem. Knowing that a lack of supply and heightened demand have left our nation, and millions of Americans, with a severe housing crisis allows us to dig deeper into the root causes and address them properly. While there is no quick fix, responsible policies that will address the underlying issues placing upward pressures on rent — the nation’s supply/demand imbalance — needs to be the focus.
Robert Pinnegar is president and CEO of the National Apartment Association in Arlington, Va.