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Top 10 Metros With the Largest Housing Shortages
While investors and developers in these metros are already working to add apartments to an extent, good opportunities exist — even in a recession.
It’s hardly news that there’s a housing shortage in the United States. While there are a few cities — mostly coastal ones — which are often pointed to as the most critical examples, the truth is that virtually every major city in the nation is short on housing. Some markets, however, are facing far more severe shortages than others.
What does this mean for a multifamily investor or developer? Two things spring to mind.
First, as any armchair economist can tell you, when high demand intersects with low supply, prices tend to go up. That’s true for rental rates as well as property values. If you own a multifamily asset in a supply-constrained market with massive demand, you’re probably at least reasonably happy with the community’s performance. And that will likely hold true in a recession, when new development activity tends to slow.
This isn’t universally true, of course. If you own or operate a luxury community in a market where the demand is nearly all for workforce housing, you might be left holding the bag on a property plagued with vacancy issues.
The second thing? If you’re a developer, you can get a good read on market fundamentals. High demand, low supply? Sounds like a good place to break ground on your next project. Of course, any developer worth her or his salt will need to look a lot deeper than just a lack of supply — rising construction and financing costs, coupled with other development activity, could make a proposed multifamily property less of a lucrative play.
Multifamily Loans calculated which 10 markets had the greatest housing shortages, based on data provided by the National Apartment Association and the National Multifamily Housing Council. This data set breaks down housing needs across 50 markets nationwide.
We’ve blended the number of units needed in each metro, combined with the amount of dated inventory (for the purposes of our calculations, we classified any property built before 1980 as “dated”). The results, presented below, show the markets not only most in need of new construction but also in need of updates to existing inventory, like significant renovations.
The 10 Markets With the Greatest Need for New Housing
New Units Needed/Year
% of Units Built Pre-1980
Units Built Pre-1980
New York City
Dallas – Fort Worth
There are a couple main reasons a market can have a housing shortage: Either inventory isn’t being built, or people are moving to the metro too fast for developers to keep up. Phoenix falls squarely in the latter category. The city has had strong population growth in recent years, due to both domestic and international migration and corporate relocations and expansions.
The supply of housing has not been able to keep up with this demand, hence its place on our list. The market needs approximately 9,000 new units per year to meet the needs of its current and future residents. Nonetheless, development has been robust in Phoenix. Only about one-fourth of the metro’s inventory is more than 40 years old.
9. San Francisco
San Francisco is another market that has been facing a pronounced housing shortage. Unlike many others on our list, this problem dates back to the 1990s. The metro’s population has by no means expanded as fast as Phoenix’s, but — unlike Phoenix — development in the Golden City has remained comparatively slow.
Why? Some point to onerous restrictions on development and zoning laws, which have tested the patience of many multifamily developers for years. Though San Francisco needs an estimated 4,000 units added per year — the lowest on our list — nearly two-thirds of the market’s supply, adding up to more than a quarter million units, was built prior to 1980.
Seattle’s housing shortage is often characterized by the lack of affordable housing, but in truth the market may be improving. The Seattle Times reported that 36% of Seattle households were burdened by the cost of housing in 2021 — meaning they spent more than 30% of their total income on housing. That’s undoubtedly not a great figure, but it’s a marked improvement from the 41% reported in 2010.
The city is taking steps to create more housing, but many say it isn’t enough. Last year’s investment in affordable housing was $153 million. While that may sound like a lot of money, in real terms it translates to fewer than 2,000 units — and Seattle needs an estimated 7,000 new apartments per year.
A Sunbelt investor favorite, Atlanta has seen a population boom in recent years, leading to rapid rent growth across the quality spectrum. The metro, home to many healthcare, finance, and tech jobs, has also had a significant amount of multifamily development. Close to 65,000 units have delivered in the past half decade, according to Yardi Matrix — but is it enough?
Maybe. The data from NAA and the NMHC peg Atlanta’s need at 8,000 new units per year. While development activity does seem on target to exceed this goal right now, the increasing costs of financing may give developers pause before breaking ground on new communities.
Life has gotten expensive in Miami. Realty Hop ranked the city as the least affordable housing market in the United States in November. The average resident, the report states, would need to pay upwards of 85% of their income to actually afford a home. What’s worse, the market is consistently getting even less affordable.
To this point, development of new market-rate and affordable housing is in dire need in Miami. But it’s tricky: There’s a lack of developable land, and costs are generally so high that many developers are only willing to commit to luxury rentals or condos. The city needs an estimated 7,000 units per year.
5. Washington, D.C.
It should come as no surprise that the nation’s capital — traditionally one of the metros with the highest rents — is in need of more housing. Washington, D.C., hasn’t seen the population gains of some of the other markets on our list, but supply has been significantly constrained for a long time. This has occurred through restrictions on development, not to mention cost.
But the city has also badly mismanaged its public housing. A federal audit of the District of Columbia Housing Authority found in 2022 that about one-fifth of the District’s public housing units were vacant. The reasons were varied — many were left in disrepair and deemed uninhabitable due to black mold, others simply weren’t matched with housing applicants — but the result is the same: There’s an incredibly strong need for more affordable housing in the capital.
4. Los Angeles
Like Miami, Los Angeles is incredibly expensive, and housing supply just simply isn’t there to meet the needs of the population. The metro needs an estimated 6,000 units added each year, but the existing inventory is also largely dated. Nearly 60% of L.A.’s multifamily units were completed before 1980.
So: What’s holding the City of Angels back? It doesn’t appear to be money: The state reported a budget surplus of $97 billion in 2022, and it has chosen to invest some of that into the development of housing solutions. The problems are more to do with a dearth of space to build new communities, not to mention the approvals and legal hurdles many apartment developers must jump through. The crisis here will very likely get worse, however, due to Los Angeles’s aging housing inventory.
Houston is another market that has been facing a growing housing shortage. The city has seen relatively strong population growth in recent years, and employment gains hit 6.2% over the year through August, according to the U.S. Bureau of Labor Statistics. The largest gains occurred in oil and gas jobs, playing to Houston’s strengths.
Along with that growth comes the need for more housing of all kinds — not just luxury developments, which have dominated Houston’s construction pipeline. Data from the NMHC and NAA indicate the metro needs 15,000 new units per year. The metro has historically been relatively easy to develop in, thanks in part to its lack of formal zoning regulations. However, with slower rent growth than most major cities, developers have tended to flock to other markets.
2. Dallas–Fort Worth
The Dallas–Fort Worth metro has exploded in population growth in recent years. Collin County, on Dallas’s north side, had the second-highest increase in residents in 2021, according to U.S. Census figures. With all these demographic shifts, it’s no surprise that the market needs more housing.
And housing is on the way: In May of this year, there were 47,011 units under construction, according to a metro report from Yardi Matrix. Of course, not all of these projects will wrap up in the next year or even two years, and the need for more rental properties is acute. The market needs an estimated 19,000 units added per year to meet residents’ needs.
1. New York City
It’s really no surprise that New York City tops the list, is it? The city is almost synonymous with housing shortages, thanks to decades of slowing development activity. Today, the nation’s largest city is burdened with high development costs, long approval processes, and an increasing scarcity of land.
The metro’s biggest challenge may be the age of its inventory. Consider that nearly three-quarters of New York City apartments are more than four decades old. That calculates out to about 1.7 million old units — many in dire need of renovations to stay competitive. Combine that with the need for 10,000 new units per year, and it’s easy to see how the housing shortage here has come about — and how it will likely further deteriorate without significant investment and development.
What are the top 10 cities with the biggest housing shortages?
The 10 markets with the greatest need for new housing are:
Rank Market New Units Needed/Year % of Units Built Pre-1980 Units Built Pre-1980 1 New York City 10,000 72% 1,656,000 2 Dallas – Fort Worth 19,000 22% 164,000 3 Houston 15,000 29% 185,000 4 Los Angeles 6,000 59% 826,000 5 Washington, D.C. 7,000 46% 273,000 6 Miami 7,000 43% 240,000 7 Atlanta 8,000 25% 109,000 8 Seattle 7,000 33% 132,000 9 San Francisco 4,000
What are the most common causes of housing shortages?
The most common causes of housing shortages are a lack of space to build new communities, onerous restrictions on development and zoning laws, and legal hurdles that many apartment developers must jump through. For example, Los Angeles needs an estimated 6,000 units added each year, but the existing inventory is also largely dated. Nearly 60% of L.A.’s multifamily units were completed before 1980. In San Francisco, the problem dates back to the 1990s and development has remained comparatively slow due to onerous restrictions on development and zoning laws. Source
What are the effects of housing shortages on the local economy?
Housing shortages can have a significant impact on the local economy. A lack of affordable housing can lead to increased commute times, as people are forced to live further away from their jobs. This can lead to increased traffic congestion and decreased productivity. Additionally, a lack of affordable housing can lead to a decrease in consumer spending, as people are unable to afford to purchase goods and services. Finally, a lack of affordable housing can lead to an increase in homelessness, which can have a negative impact on the local economy.
For more information, please see the following sources:
What strategies can be used to address housing shortages?
The Biden Administration’s new housing plan aims to close the housing gap within the next five years by tackling some of the issues that contribute to housing shortages. Strategies outlined include the encouragement of zoning and land-use reforms, new and expanded financing programs, and addressing supply chain issues. Source
In markets like San Francisco, onerous restrictions on development and zoning laws have tested the patience of many multifamily developers for years. Strategies to address this issue include loosening zoning laws and increasing the supply of housing. Source
What are the best financing options for multifamily housing projects?
The best financing options for multifamily housing projects depend on the individual situation. Generally, loans backed by the Department of Housing and Urban Development (HUD) are some of the most advantageous financing options out there. HUD loans offer 35-year fixed rate terms, full amortization, and leverage up to 83.3% for market-rate apartment buildings or 87% for rental assistance properties. However, these loans take more time to get the financing.
Other common financing options for multifamily properties include Fannie Mae and Freddie Mac loans, FHA loans, and conventional loans. Unconventional options such as bridge loans and hard money loans could also be used for those who only need a short-term loan and who expect they can pay off the property relatively quickly.
For more information, please see the following sources:
What are the most successful strategies for increasing housing supply?
The Biden Administration’s new housing plan aims to close the housing gap within the next five years by tackling some of the issues that have made widespread construction of new affordable housing units a significant challenge. Strategies outlined in the plan include the encouragement of zoning and land-use reforms, new and expanded financing programs, and addressing supply chain issues.
Zoning and land-use reforms are key to increasing housing supply. These reforms can include allowing for higher density housing, reducing parking requirements, and allowing for accessory dwelling units (ADUs).
New and expanded financing programs can also help increase housing supply. The Biden Administration’s plan includes expanding the Low-Income Housing Tax Credit (LIHTC) program, which provides tax credits to developers who build affordable housing. The plan also includes expanding the HUD 223(f) loan program, which provides long-term, non-recourse financing for the acquisition and refinancing of multifamily properties.
Finally, addressing supply chain issues can help increase housing supply. This includes increasing the availability of construction materials, such as lumber, and providing incentives for developers to build affordable housing.