Atlanta’s housing affordability is undeniably a growing issue and foremost on the minds of many. The Atlanta mayor’s office recently launched a tool to track the city’s progress in meeting ambitious housing affordability goals, while an Atlanta city council member has asked the state to reconsider its preemption on local rent control policies. And the National Association of Realtors has reported the city’s affordability ranking fell last year from 73rd to 91st out of 174 U.S. metro areas.
Housing affordability has significant implications for the region’s economic competitiveness and sustainability. Affordable housing is critical to a thriving economy and provides residents with equitable access to opportunities.
Yet, amid all the discourse and dismay about affordability, few have stopped to consider what is driving apartment rental prices upward, or what can be done to combat rising rents. Understanding these drivers goes a long way in helping to unearth solutions – something Atlanta’s multifamily developers and property owners are eager to do.
What those developers know all too well is that the rent required to support the construction of new apartment communities is determined by the cost to develop and operate these properties. Let’s focus on development, where there are several concerning trends.
As a recent study conducted by HR&A Advisors showed, construction costs have increased dramatically across the country since 2010 due to the increasing cost of materials and rising wages. In Atlanta, construction costs increased by 17% since 2010 and more than 80% since 2000.
Construction costs in Atlanta are now the highest among comparable Southern cities. In 2018, Atlanta had construction costs 12% higher on average than national benchmarks, compared to only 6% in Dallas and 3% in Raleigh.
As a result of rising construction costs and low market rents, most neighborhoods in south and west Atlanta cannot support new development. Although land there is relatively less expensive, prevailing market rents cannot support new (and more costly) development. Compounding that, neighborhoods with supportable market rents and demand are overwhelmingly zoned for single-family development. In North Atlanta, for example, more than 89% of all residential land is zoned for single-family housing only, and even in the denser city center around Midtown and Georgia Tech, 73% of all residential land is zoned exclusively for single-family housing.
Additionally, the cumulative impact of mushrooming municipal fees and regulations can substantially increase rents. HR&A’s study revealed that when six typical housing policies were included, rents could increase 18% to 20%. This can increase rent on a new apartment by more than $400 per month, pricing out thousands of current and future Atlantans.
A great example of one of these policies is impact fees – fees imposed on new development to help pay for the cost of public improvements and services. In recent years, jurisdictions in metro Atlanta increased impact fees per unit from roughly $1,200 to more than $6,000 – a 400% increase. If the City of Atlanta were to follow suit, a similar increase in city impact fees would increase monthly rents by $10 to $40.
This is a classic example of unintended consequences from otherwise well-intended policies. Instead of providing funds for the completion of a municipality’s new infrastructure needs, these fees often end up increasing rents or deterring development of new housing altogether.
If housing affordability is a public goal, municipalities must collectively consider the policies and realities that impact the overall affordability of housing and begin taking steps to mitigate those cost drivers to ensure that the region remains affordable for all families, including:
(1) Studying the impact of new municipal policies on area rents before taking action.
(2) Expanding by-right zoning for apartments – especially in parts of the region that are experiencing the most growth.
(3) Streamlining and reforming permitting processes and approvals to reduce lengthy delays.
(4) Committing local and external resources to preserve existing affordable housing and to subsidize the creation of new affordable housing.
(5) Considering tax incentives that provide incentives in exchange for rents at a certain affordability level and focus on increasing the overall supply of housing to reduce overall demand pressure.
It is clear the city of Atlanta and municipalities across the region can influence affordability through policies, programs, and resources to affect the underlying cost drivers of constructing and operating housing. As policy leaders grapple with strategies to improve affordability, it is imperative that any proposed new policy, regulation, or incentive consider and address these root cost drivers.
Jim Fowler is president, Atlanta Apartment Association.