In 2009 and 2010, debt stopped flowing to apartment developers. After a slowdown of a couple of years, rental demand and a return of construction debt and equity brought the apartment construction market back from the brink. With plenty of demand for their apartments, developers began adding nicer features to their buildings, which ultimately sparked what many have called an amenities arms race.

“Generally speaking, today we are building a dramatically better product than in the last cycle with improved design and better materials,” Mutz says. “These new apartments that are being built are really high-class and loaded with amenities and beautiful interiors.”

While developers are adding many of these features to appeal to the renter by choice, cost increases are also being imposed from other places. In some cases, cities have tightened code, which adds costs, and land sellers have increased the price of land. Material and labor costs have also risen sharply since the downturn.

“One outcome of the financial collapse was a dramatic preponderance of investment into a very high-end product where you could make the numbers work,” Mutz says. “As a result, there is a lack of affordable housing built.”

The single-family slowdown, which sent people back to apartments, has also contributed to the affordability problem, as it has become harder for builders to produce entry-level homes for a profit. After over-producing housing units of all types by an average of 454,000 per year before the recession, since 2010 new construction has fallen short by about 132,000 units per year.

“I think one thing that we’ve discovered in the past 10 years is that we are under-building housing in the United States,” Schwartz says. “The total housing stock we are delivering is not meeting household formations. That doesn’t seem like it’s correcting; it’s making the housing affordability problem worse.” 

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