There’s a growing crisis in America that is threatening our economic future and social stability. It is the growing shortage of affordable multifamily housing—in other words, apartments—throughout the nation.
The crisis is already out of control in Silicon Valley, where hundreds of tent cities reportedly exist, according to National Public Radio (NPR). The cities exist because they are the only places in the region where some people are able to live. One such community, the Jungle along San Jose’s Coyote Creek, housed 300 people and covered six acres.
“We have a regional housing crisis,” Jennifer Loving, the head of an organization called Destination Home told NPR. “We have the most expensive housing market in the nation, and it takes five minimum wage jobs to afford a place to live here. Silicon Valley, it’s almost like a tale of two cities.”
Things are not as bad in Denver, Colorado, but they could soon get there. Zillow.com determined that rents in the Denver area increased by 9.4% between 2013 and 2014. That means it is now cheaper to buy than rent a home in Denver; Denver-area renters spend 32% of their income on housing while homeowners spend 19% of their incomes on housing.
“In Denver, rents have increased at such a pace that it is going to be very difficult for renters to be saving up for a down payment for a mortgage,” Zillow economist Skylar Olsen told Colorado Public Radio.
Harvard Predicts Housing Shortage Will Get Worse
The situation exists because the nation’s housing industry simply isn’t building enough apartments to meet the demand. Harvard University’s Joint Center for Housing released a report called The State of the Nation’s Housing 2014, which contained some disturbing statistics that show the cause of the problem. Some bothersome numbers from the survey included:
- The United States will require 7 million new multifamily units by 2023, but only 3.1 million such units will be built if present levels of construction continue.
- The number of apartments and townhomes being built in the U.S. today is lower than it was in the 1970s. In 2013 around 307,000 multifamily housing units were under construction. During the average year in the 1970s, around 625,000 such units were built.
- That level of construction is not keeping up with population growth. In 1973 the U.S. population was around 211.9 million; in 2013 it was 316.1 million people.
- The market has not been providing enough multifamily housing for quite some time. During the 2000s around 307,000 multifamily housing units were built a year in the U.S. In contrast, 507,000 such units, or 200,000 more a year, were built during the 1980s.
- The underinvestment in housing will make the situation worse because 60% of the multifamily housing units in the U.S. were built before 1980. That means many of the apartments and duplexes are old, rundown, and in need of repair.
- The situation gets worse because around six percent of existing multifamily housing buildings are torn down, abandoned, or converted to other uses every year.
- The level of starts of multifamily housing projects in the U.S. actually fell at the beginning of 2014.
So what is the cause of this situation? A big problem is that we no longer have a free market for housing in the United States. Our mortgage system only rewards those that build single homes and, worse, pays the most to those that build homes or fancy condos for the rich. Naturally, developers and builders supply what the market wants, namely expensive luxury housing.
The failure to apply modern technologies to housing has made the situation worse by artificially inflating prices. When a Denver company called Prescient applied modern manufacturing techniques such as the use of robots to build prefabricated housing components at its factory, it reduced multifamily housing building costs by 35% and cut the building time in half.
Many areas of the country also have laws that make it virtually impossible to build lower income housing. Some cities ban mobile homes, which are a cheap and easy to install kind of basic working class housing, for example. In some regions, as in Silicon Valley, some cities ban the construction of apartments within the city limits. Rent control makes it unprofitable to build or operate apartment houses in some cities. Laws against condominiums can also make it difficult to build multiunit buildings.
Some government solutions to the housing shortage can also make the situation worse. For example, laws that require developers to add so many “affordable units” to each project discourage housing construction. The exit of government from the affordable housing business has taken away an important incentive to construct affordable units.
The good news is that these problems can be dealt with and new technologies could provide the housing we need. The bad news is that we don’t have the kind of housing market that can take advantage of such developments. This situation will lead to more inequality and more social unrest as more and more Americans realize that they can no longer afford a home.
It looks as if we have a housing crisis in the United States; the most affluent nation in the world can no longer meet some of its citizens’ basic needs. Unfortunately, our political and business leaders don’t seem to be willing to address the situation.