“Supply and demand” describes the interaction between the available amount of a resource and the need for it by consumers. In the world of community development, nowhere is this dynamic more pronounced than in the rental housing market.
Recessionary times have combined with barriers to homeowner financing to spark a surge in rental demand within many U.S. cities and regions. At the same time, erosion in worker salaries over the past decade has led to a record number of households devoting a disproportionate amount of their income towards rental payments. An uptick to increase the supply of rental units and keep pace with an escalating demand needs to occur, but instead, there's been slow movement in rental housing construction. Where are we seeing the most profound results of this combination of factors – and how can communities best accommodate the new flood of renters?
According to a study conducted by the Harvard Joint Center for Housing Studies in conjunction with the MacArthur Foundation, participation in the home rental market is at its highest level in more than a decade for all age groups. The US now has 43 million renter households, representing 35 percent of all households. This report also found that housing affordability issues have soared, since nearly half of renters possess annual incomes below $30,000, including 22 percent with incomes below $15,000. More than half of all renters — 21 million households — dole out more than 30 percent of their income for housing. These figures represent the greatest number of cost-burdened renters on record.
The Colorado Front Range and the Bakken Region of North Dakota and Montana are examples of areas where high levels of population growth have led to meteoric shifts in the rental housing markets. Over the last three years or so, the influx of new residents has driven monthly rates to unprecedented heights.
The Front Range refers to the most populous areas of Colorado: cities like Boulder, Fort Collins, Castle Rock, Colorado Springs, and Denver, which have become the primary hotspots for new resident growth. Much of the development there is a result of incoming highly educated workers, who are arriving in droves from California, Ohio, Texas, Florida, and the Dakotas. Denver has had the distinction of being ranked first among U.S. metros for total population gain in the 25-34 age range between 2008 and 2010, and the Census Bureau estimates that by 2020 Metro Denver’s population will soar from 2.9 to 3.2 million.
Northeast of Colorado is a region that has seen explosive growth due to an oil boom, with a population that now includes thousands of migrated workers filling the numerous jobs. This sudden movement to lucrative location is reminiscent of the California gold rush era. According to the U.S. Energy Information Association, oil production in this region is expected to top one million barrels a day by year-end 2013.
The black gold hotspot is the Bakken Region, which extends from parts of North Dakota into Montana, encompassing 12 counties. The Bakken Region has seen its working population swell by 70% since 2010. While the economic trend has been a boost to fortunes, a chronic shortage of living accommodations for transient workers has led to a serious imbalance in the housing supply/demand equilibrium. The result: home and rental housing costs that boggle the mind and terrify the wallet, sending many arriving workers into hysterics as they try to find a place to rest their heads at night. There is frequent talk of workers that are forced to live in their cars while earning $100,000 a year. Trailer parking spots can be found for rates that have escalated to $800 a month, and hotel prices are even higher; a one-night stay can be $300, or even more.
The operative question for city leaders and planners in these regions is how to build large swaths of new housing without the supporting infrastructure to accommodate the expansion. Michael Leccese, Executive director of Urban Land Institute Colorado (ULI), notes that during the recession the area's boom in apartment living has played a crucial role in keeping real estate development afloat. “The pace of apartment construction has provided needed housing for the region’s growing population of Millennials, as well as for empty nesters and those shut out of the for-sale market for whatever reason,” says Leccese. “Many of these apartments have been constructed in walkable, urban infill and transit-accessible locations, and often feature innovative, green building designs.”
The massive push to expand housing supply has raised the question of whether the market is being overcorrected to the point that supply will exceed demand. As construction begins on more and yet more new apartment buildings, will the Front Range and the Bakken Region continue to see the massive growth that has characterized the last few years?
Leccese asserts, “There is no doubt that we are seeing some concern on the part of our ULI members in terms of this overbuilding, as well as the lack of diversity in product type and price point. Some are, in fact, wondering whether this might be the new housing bubble.” If growth does slow, this will mean good news for renters, who will likely see more affordable rental rates. For rental housing companies, however, it would not be a call for celebration.
Along with the Colorado Front Range and the Bakken Region, cities throughout the nation with growing populations will be facing similar challenges as they strive to insure an appropriate supply of reasonably priced rentals to accommodate regional housing needs. The issue shows no sign of abating in cities and regions possessing rich harvests of jobs that attract new entrants to their area.
Age and cultural demographics also factor in. It's estimated that the number of renters 65 and older will increase by 2.2 million between 2013 and 2023. Hispanics are also projected to account for a substantial share of renter growth over this period.
Addressing this issue will require thoughtful decision-making based on sound information about demographic shifts and job availability — and a firm understanding of trends in regional supply and demand.
Michael Scott is a writer, speaker and researcher specializing on the interconnection between people and their community environments. He can be reached at email@example.com
Flickr Photo by Sam Mooney - Rental Sign: Are cheap rents soon to be history?