New Developments, The Housing Donut Hole
By Thom Amdur
4 min read
On a taxi ride into Denver I counted 27 cranes – a staggering amount of construction. An article in the local paper reported that developers delivered 3,246 new multifamily apartments in the first quarter alone and 10,000 in total are expected to be delivered by year end! A local real estate executive told me that 100 millennials move to Denver every day. This is validated by my own personal experience: two years ago my 26-year old brother-in-law and what appears to be all of his friends from college moved out to Denver en masse.
These are remarkable statistics. But what are all these young people going to do in Denver?
Quality of life in Denver seems great (300 days of sunshine, four seasons of outdoor activities, a new brew pub on every corner and even legal marijuana if you want it), but can the local economy support this growth in the long term? Can the influx of new arrivals and long-term locals continue to afford to live here? Rents across the housing spectrum are already very high. A recent article in the Denver Post reported that, “Apartments built since 2010 in metro Denver command an average rent of $1,729 a month, while the rent on those built in the 1970s averages a much lower $1,079 a month.” Talking to several local developers at the Colorado Housing Finance Agency’s Annual Tax Credit Developers conference, I was quoted even higher rents – some of the new one-bedroom apartments coming on line this spring are asking for rents in excess of $2,500 per month.
The run-up rents in Denver may be an extreme example, but they reflect a national trend. Rental supply is not keeping up with demand in many cities – and not just on the coasts. This is putting enormous pressure on the middle of the market, the unsubsidized market-rate apartments that historically served low- and middle-income individuals and families. As has been widely reported over the past year, virtually no starter homes or low-cost unsubsidized rentals are being developed by the market. The loss of naturally occurring affordable housing (NOAHs) exacerbates this problem further.
On the demand side of the equation, Millennials have surpassed the Baby Boomers as the largest generational cohort in the U.S. They enter the job market carrying historic levels of college debt into an economy that is only adding modest numbers of new jobs and whose growth really seems to be coming from gains in productivity and efficiencies rather than great increases in demand for American products and services. Where there is job growth and opportunity in cities, like Denver, the market rents have created an affordability crisis that does not just impact our traditional constituency of tax credit and Section 8 income qualified renters (of whom only one-quarter receive any rental assistance) but also those in the workforce housing “donut hole” earning 60 to 120 percent of AMI, who don’t qualify for assistance, and are housing cost-burdened too.
This month’s issue focused on workforce housing is very timely in our national debate. Proposed cuts to community development and assistance programs, if enacted, will only make the housing availability problem worse. Serious efforts are underway in Congress to strengthen and expand the LIHTC, which, if enacted, will help bolster the lower end of the market. But we must also explore additional solutions for the middle of the market. The income-mixing provision will create new opportunities to serve both the lowest income residents and a heretofore unserved demographic – 61 to 80 percent AMI. We highlight several local solutions in this month’s issue, including microunits in Seattle and programs in New York and Massachusetts designed to address local workforce housing needs. There are some great ideas on the local level that can and should be taken to scale. We’ll need all of the above solutions if we hope to solve this crisis.
