Housing costs have been rising in Atlanta and across the U.S., leading many to weigh in on the causes. Yet bypassed in many of our collective observations is a basic economic principle: it’s about supply and demand.
A wave of market forces has resulted in a limited supply of available homes – both apartments and for-sale units, while at the same time large numbers of people are looking to metro Atlanta for their next home. As supply is being constrained and demand is growing, rents and home prices are driven even higher.
This might seem like too simple of an explanation – and with no bad actors to blame – but the facts speak for themselves.
On the rental side, demand for apartments in 2021 surpassed the previous annual high by 66%, according to RealPage, and by all signs continues to climb in the first few months of 2022. One reason: two years of graduates are searching for housing, and households that might have condensed due to COVID-19 are re-emerging and expanding, competing for housing, further driving the supply-demand imbalance.
Credit: contributed
Credit: contributed
Eviction moratoria have further diminished supply. Mom-and-pop owners, who make up 53% of the nation’s rental housing stock, have been overwhelmingly impacted. The National Rental Home Council notes that one-third of these smaller apartment owners indicate they may sell or have sold all of their properties, up 10 percentage points from a year earlier.
And further, existing housing stock is aging and will require rehabilitation and renovation to remain within the rental market. The Atlanta Apartment Association reports that in Atlanta, 27% of rental housing was built before 1980. If these aging units, comprising much of our city’s naturally occurring affordable housing, leave the market, we will lose essential housing, fall further behind and increase intense competition for affordable units.
Credit: contributed
Credit: contributed
On the for-sale side of the ledger, the FMLS data provided for the Atlanta Realtors Association shows the inventory of homes for sale is down 9% from this time last year while home prices have increased 20% over the same time period, reaching new highs of $395,000 median and $473,000 average home prices in metro Atlanta.
COVID-19 only served as a catalyst for this imbalance and the nation’s housing affordability crisis. Due to the pandemic, the housing industry has been hit with severe undersupply of goods and services, labor shortages, inflationary pricing and supply chain delays. Rising property prices may be good for sellers and those who want to grow their equity, but they also bring higher insurance premiums and taxes.
The economics of owning apartment housing in today’s chaotic market also is important to remember. For example, rent growth calculations typically don’t include renewal leases, only new ones. Yet, with occupancy at an all-time high, renewal leases are more common than ever before. This understanding and inclusion of renewals reveal that today’s overall rent growth in metro Atlanta is actually on par with the years leading up to the pandemic.
Truth is, there has been a significant need for more homes – both single-family homes for sale and apartments – in metro Atlanta for several years. We need to build more housing to meet demand, which will take pressure off a stressed market. In fact, a pre-pandemic study by the National Apartment Association concluded that we need to build at least 12,000 new apartment units in Atlanta every year just to meet the current demand.
Building this much-needed housing means we must be dedicated to sustainable solutions and responsible policies that will address the underlying issues placing upward pressure on housing costs. This includes the pressing need for local governments to remove barriers to new housing development and rehabilitation. The more red tape there is to work around, the more costly and time-consuming the process becomes.
Rising housing costs call on us to act swiftly and smartly to increase the supply of available housing, because, as even economists of long ago knew, it’s about supply and demand.
Jim Fowler is President of the Atlanta Apartment Association, which represents over 1,200 member companies consisting of 340 companies managing 400,000-plus apartment homes, and over 800 businesses that provide products and services to the industry.
Karen Hatcher is president of the Atlanta Realtors Association (ARA). With over 13,000 members, ARA is the largest local real estate association in Georgia.
