March 13, 2018 - Article

Has Affordability Improved?

The apartment construction boom that has characterized the post-financial crisis economic expansion has resulted in significant growth in the national inventory of multifamily properties. According to the Census, nearly 350,000 apartments in privately-owned buildings with 5 or more units came online in 2017, the highest number since 1998. More than 2 million units have been completed in this market segment since 2009.

Construction has not been distributed evenly across the metropolitan landscape. In fact, this cycle’s new inventory has been overweighed to relatively large, high-amenity properties in urban cores, catering to healthy demand from Millennials, retirees, and other households with strong preferences for lifestyle features. In some urban cores, development has proven sufficiently robust so as to drag on rent growth.

In contrast with moderating rent growth in downtowns, broader measures from the Census that include all multifamily properties, irrespective of location or amenities, tell a different story. Here there is little indication of a slowdown in rent. In 2017, the price index for rental residences increased 3.8 percent, according to the Census, the fastest pace since the economic recovery began in 2009.

While a boon to investors and operators, strong rent growth trends also reflect an erosion of affordability for America’s renting families. While rents have increased at a fast clip, income growth has been sluggish since the economy returned to expansion. As shown in the chart accompanying this post, year-over-year growth in earnings has lagged rent trends significantly for roughly seven years. While this is just one metric and does not isolate earnings growth for renters specifically, it is instructive that the implied cost burden on renting families has increased substantially.


Trish Hoffman