Producing an adequate supply of housing that is affordable to low-, middle- and high-income renters is one of the most significant housing challenges currently facing the country. The number of rental households in the United States is rising—up from 35.7 million in 2000 to 43.8 million in 2016, per a Pew Research Center analysis of Census Bureau housing data—and an increasing number of renters, 46% to be exact, already struggle to afford rent.

Delivering ample multifamily inventory while meeting the need for affordability is complex. Land costs are rising—up 100% since 2000—and many cities find themselves without available land for new multifamily development. Unnecessarily strict policies are adding to development costs, with zoning requirements, regulatory barriers and density restrictions responsible for driving significant costs.

As developers know first-hand, the multifamily industry comprises a significant portion of U.S. housing inventory. There are 20.7 million multifamily units in the United States, which account for 16% of total housing. And research commissioned by Hoyt Advisory Services found an additional 4.6 million units are needed by 2030 to meet demand. Multifamily development generates an increased tax base, is more energy-efficient than single-family properties and allows for a higher number of units on the same amount of land.

Developers who understand the need for and benefits of multifamily development know the current dynamics between supply and demand are not sustainable. Cities must find ways to support new development and redevelopment to deliver the housing inventory that residents are looking for. Achieving this objective requires forward-thinking policies and an open dialogue among developers, policymakers and the community-at-large. It also requires a keen understanding of local market dynamics to ensure the solutions created—and ensuing inventory delivered—meet the unique needs of the local community.

Getting started

Stagnating renter incomes and rising development costs are making it difficult to deliver affordable multifamily inventory in urban cores across the United States. Rethinking local housing policies can help to address affordability by making it more cost-effective for developers to build in a given market. In turn, these lower development and operating costs result in lower asking rents for future residents.

These development incentives typically fall into two categories: regulatory and funding. Regulatory incentives include density bonuses, accelerated approvals and flexible design standards, while funding incentives encompass public land, reduced fees and tax incentives.

Thinking differently about land

Available land for new development is one of the most common challenges facing cities across the United States. Making public land available to developers at a discounted price is one way cities can combat this challenge.

Effective public land policies employ a well-defined selection process and ensure a diverse portfolio of parcels is available for consideration. In Atlanta, zoning relief for project modifications, reduced parking requirements and public land disposition guidelines have led to the successful recruitment of developers for transit-oriented development by the Metropolitan Atlanta Rapid Transit Authority.

Reevaluating density requirements

Density restrictions limit a building’s revenue-generating potential. For example, reducing the total number of units on a 200-unit project by 30% can yield an increase in required rent ranging from $70 to $140 per month. On the flip side, increasing the total number of units in a mid-rise apartment building in the northeast by 30% can lower the required rent per unit by as much as $200 per month.

Research shows that denser urban areas are associated with higher productivity levels; demonstrably, a 2017 Fannie Mae poll found that 7 out of 10 renters were willing to downsize in order to live in a dense urban area.

The impact of incentives

As noted above, incentives fall into two broad categories: regulatory and funding. Among the most common are tax incentives, which take the form of tax abatements, tax rebates or tax exemptions depending upon the specific goals of a particular community. Each yields a net reduction in property taxes paid, resulting in lower operating costs, the benefits of which can be passed along to residents via lower asking rents. To maximize the benefits of tax incentives, communities must establish an approach to increasing affordability that is not only clearly defined, but feasible as well. The incentives should account for local market conditions and be customized to support those needs.

While the needs of every community are unique, the impact of inadequate, unavailable multifamily housing made affordable for all renter income brackets is being felt across the United States. As rising demand puts upward pressure on asking rents, many low- and mid-income renters alike are finding themselves displaced to nearby communities. Although there isn’t a one-size-fits-all solution to improving housing affordability across the United States, developers and policy makers have the capacity to foster an open dialogue that will lead to new, friendlier policies for the development and continued operation of multifamily properties in cities nationwide.