How Financing Restricts the Rental Housing Market

The way apartment buildings are financed has a major impact on supply and costs.

2 minute read

April 16, 2024, 9:00 AM PDT

By Diana Ionescu @aworkoffiction

Four-story light-colored multifamily apartment building.

Sundry Photography / Adobe Stock

In a piece for Strong Towns, Charles Marohn seeks clarity on the many rumors swirling about the U.S. housing market. “If we listen to those concerned about housing affordability, rents are already too high and may only go higher. If we listen to those concerned about housing finance, panic sits just under the surface because rents are about to collapse. Can both of these narratives be true?”

Marohn explains how the way that multifamily residential buildings are financed has a lot to do with rent costs and supply. “The way you make money in commercial real estate today is by leveraging lots of debt. This is one of the reasons that just 25 developers were responsible for one in four multifamily units started in 2022, an astounding level of concentration in a market with over 60,000 developers.”

Marohn notes that the current system of commercial debt worked for property owners and lenders for decades. Now, things are coming to a head. “There are many reasons why there is such hyperventilating over higher interest rates (I mean, we are ridiculously overindebted at all levels of society), but one enormous reason is that it forces the issue on commercial real estate. When the loan is rolled over, the numbers don’t work anymore.”

According to Marohn, it’s possible that lower interest rates made it easier for investors to withhold real, vacant apartment from the market to restrict supply and drive up rents. “If you think building more units in this same top-down, financialized system is going to fix things, you’re stuck in the housing trap. There’s only one way out: a bottom-up revolution in how we deliver lots of units at prices anchored to local capacity.”

Monday, April 15, 2024 in Strong Towns

Aerial view of homes on beach in Maui, Hawaii

Hawaii Passes First Legislation Regulating Short-Term Rentals Statewide

The new law will give counties the power to limit number or short-term rentals and convert existing short-term rental units back into long-term residential housing.

May 13, 2024 - USA Today

Google office building in Virginia.

Virginia Data Centers Draining State’s Water Supply

Being the world’s largest data center hub is having a severe impact on local water resources.

May 9, 2024 - Grist

Entrance to a drive-through car wash at night with green 'Enter' sign.

Ohio Towns Move to Ban New Car Washes

City officials in northeast Ohio are putting limits on how many car wash facilities can open in their towns.

May 16, 2024 - News 5 Cleveland

Grand Coulee Dam in Washington state.

Northwest Power Demand Could Surge as Data Centers, Transportation Electrification Ramps Up

New estimates project a steady increase in electricity demand due to population growth, data centers, and the shift to electric power in homes, buildings, and transportation.

May 17 - Governing

Blurred traffic speeding by on freeway with Los Angeles skyline in background.

California Testing Per-Mile Gas Tax Alternatives

A summer pilot program will test the fairness and efficacy of collection mechanisms for mileage-based fee options.

May 17 - Newsweek

Close-up of 'Pay rent' note in red marker on day 1 of monthly calendar.

After Months of Decreases, Rents Nationwide Are Going Up

Average rents rose by $12 around the country so far this year.

May 17 - Smart Cities Dive

News from HUD User

HUD's Office of Policy Development and Research

Call for Speakers

Mpact Transit + Community

New Updates on PD&R Edge

HUD's Office of Policy Development and Research

Urban Design for Planners 1: Software Tools

This six-course series explores essential urban design concepts using open source software and equips planners with the tools they need to participate fully in the urban design process.

Planning for Universal Design

Learn the tools for implementing Universal Design in planning regulations.