Even though some people believe that adding supply will never ease the demand for housing, particularly in hot markets like the Bay Area there are a few metro areas that seemingly have bucked that disbelief.
In 2015, DC permitted more new housing units—4,956, to be exact—than in any year since the Census started keeping track in 1980. This pace of housing growth compares favorably to other cities, and there’s reason to believe it’s helping to slow rent increases.
In recent years, real estate analysts have noted that DC’s higher pace of building has led to rents that are slowing in growth, or even declining. This effect is especially seen at the higher end of the market, since most new construction is luxury.
Here’s Multifamily Executive covering a new Yardi Matrix report:
The cities that had the smallest rent gains in 2015 were Richmond, Va.; Washington, D.C.; and Baltimore. Echoing other reports, Yardi says Washington’s rent gains have been held back because of the large amount of new supply in its market, while Baltimore still lacks job growth. These cities can expect to see similar results in 2016, Yardi says.
There are 22,000 units projected to open this year and next. Combine that with the 7,400 units developers opened last year. – the highest level of production seen locally since 1991 – and it’s easy to see why landlords are concerned.
“It’s interesting right now because supply, I think, is definitely having more of an impact and a drag on the market right now more than anything else,” said Pettit during a Bisnow event.
While a lot of the units in DC and Seattle are of the luxury and higher market rate variety, according to the latest report from the Legislative Analysts Office because of the barrier to actually building subsidized affordable housing, at this point one reliable method to helping to soften the housing market pricing is by building market rate housing, from Streets Blog:
The report notes that it’s simply unrealistic to expect that current strategies to prevent displacement, like voucher and affordable housing production programs, will meet the growing need of rent-burdened low-income households by themselves.
“While affordable housing programs are vitally important to the households they assist, these programs help only a small fraction of the Californians that are struggling to cope with the state’s high housing costs. The majority of low-income households receive little or no assistance and spend more than half of their income on housing,” according to the report.
“Extending housing assistance to low-income Californians who currently do not receive it — either through subsidies for affordable units or housing vouchers — would require an annual funding commitment in the low tens of billions of dollars. This is roughly the magnitude of the state’s largest General Fund expenditure outside of education (Medi-Cal),” the report says.
Policies like rent control, while they may benefit some existing tenants, don’t actually do much to address the problems in the long term because price controls don’t add new housing.
More on that report in a different post.