Evolution of the supply of housing stock

EVOLUTION OF THE SUPPLY The single-family housing stock absorbed nearly two-thirds of the decade-long growth in renter households, lifting the single- family share of occupied rentals (including mobile homes) from 34 percent in 2005 to 40 percent in 2015. The sharp increase in single-family rentals resulted from conversions of millions of owner-occupied homes following the housing crash, stemming largely from the wave of foreclosures but also from owners’ reluctance to sell in a depressed market.

In contrast, new construction was responsible for much of the growth in the multifamily stock. Indeed, the number of mul- tifamily starts intended for rent climbed from a low of about 92,000 units in 2009 to 370,000 units in 2015, the highest level since the 1980s. Given the relatively long multifamily develop- ment timeline, starts remain well ahead of rental completions, which increased to 304,000 units last year.

According to the Survey of Market Absorption, new multifamily units have fewer bedrooms on average than those built over the past two decades. More than half of the unfurnished, market- rate rentals in structures with five or more units that were completed in 2014 were either studios or one-bedroom apart- ments—the largest share in history, and well above the 36 per- cent average share in the 1990s and early 2000s. Only 7 percent of apartments added in 2014 had three or more bedrooms, down from about 13 percent in earlier periods. Construction was also more concentrated in urban areas, with 57 percent of comple- tions in the past two years located in principal cities compared with an annual average of 45 percent dating back to 1970.

While newer rentals have always commanded higher prices than older units, the premium for new apartments has risen sharply even as their size has decreased. The median asking rent for a new market-rate multifamily unit built in 2015 was $1,381 per month, more than 70 percent higher than the over- all median contract rent for multifamily apartments. The rent premiums for new studio and one-bedroom apartments were at highs of 90 percent and 78 percent, respectively. The steep rents for new units reflect rising land and development costs, which push multifamily construction to the high end of the market. They are also a measure of the growing demand from high-income renters for luxury apartments.

At the other end of the market, growth in the low-rent supply is largely driven by downward filtering of older units. For example, fully 15 percent of units renting for less than $800 per month in 2013 had rents above this cutoff in 2003 (in inflation-adjusted terms). At the same time, however, many low-rent units were upgraded to higher rents. On balance, filtering increased the sup- ply of units renting for under $800 by just 4.6 percent between 2003 and 2013, a gain that was more than offset by the per- manent loss of 7.5 percent of similarly priced units (Figure 28). Factoring in other changes to the stock, the number of low-cost units rose only 11.2 percent over the decade—less than half the increase in higher-rent units and far below the growing number of low-income renters for which these low-cost units would be affordable.

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