Source: Joint Center for Housing Studies, Harvard University (2024)
Rising construction costs and declining affordability have caused the loss of 6.1 million low-cost rental units in the past decade. Operating costs for housing providers surged, with deferred maintenance threatening the quality of aging housing stock. Rent control does nothing to address these issues, instead accelerating the decline in housing supply and quality.
Key Findings: How Rising Costs and Financial Pressures Impact Housing Supply and Quality
High Interest Rates Constrain Multifamily Financing
○ Rising interest rates have significantly increased the cost of debt for multifamily developers, making new projects less financially feasible.
○ Fixed-rate multifamily loans reached an average of 5.5% by mid-2023, up from historically low levels during the pandemic.
○ This higher cost of capital has led to a 48% drop in multifamily mortgage originations year-over-year, stalling new development.
Construction Delays and Costs Are Increasing
○ Construction timelines for multifamily buildings have grown longer, with the average time from start to completion rising to 17 months in 2022, up from 10.8 months a decade ago.
○ Material costs have soared since the pandemic, with gypsum (+41%) and plastic products (+35%) driving up expenses, alongside a 14% rise in construction labor costs.
○ Rising costs are steering new developments toward higher-end units, leaving fewer options for low- and moderate-income renters.
Risk of Delinquencies Grows
○ Slowing rent growth, higher costs, and increased borrowing expenses are leading to rising risks of delinquencies, particularly for properties with recent loans.
○ Delinquency rates for multifamily loans backed by commercial mortgage-backed securities (CMBS) climbed to 3.8% in mid-2023, compared to pre-pandemic lows.
Operating Costs Strain Small-Scale Providers
○ Increased operating and insurance costs are squeezing small-scale housing providers and subsidized properties the hardest.
○ Many landlords are unable to afford critical repairs, further deteriorating an already aging housing stock. This puts low-rent and assisted units at risk of being lost entirely.
Implications for Rent Control:
As financial pressures mount, rent control policies worsen the situation by capping landlords' ability to cover rising expenses. The result is fewer new developments, delayed maintenance, and a decline in the quality and availability of affordable housing—harming the very tenants these policies claim to protect.