A recent article in the Washington Post discussed the current cost of rental housing. The article, citing a Harvard study on the topic, claimed that 26% of all tenants spend more than half of their income on rent and utilities. That’s the highest percentage in the last 50 years!
The article attributes the shortage of low-cost rentals to two principal factors: The cutback in residential development due to the deterioration of the economy in 2009, and the claim – at least according to a report produced for Congress by the Obama Administration – that financing is more readily available for high-end rental properties.
The Harvard study, the Obama report, and the Washington Post all display an appalling ignorance of the real estate market – or worse, participation in a cover-up intended to (again) protect their the political allies responsible for this mess.
Here are some of the real reasons for the rental housing shortage:
1. Government at all levels meddles in the market, forcing anyone who wants to build rental housing to jump through endless hoops, thereby causing interminable delays.
2. All this meddling causes significant cost increases, only to drive up the construction cost of each unit and the resulting monthly rent for the tenant.
3. Governments charge excessive fees under the misguided notion that the “deep-pocket developer” is bearing the cost when it is actually the tenant who pays a higher monthly rent.
4. Governments demand that developers pay for unrelated city enhancements such as street lights or parks. These are nothing more than bribes paid to public officials to complete their pet projects; again causing the development cost – and the resulting monthly rent – to increase substantially.
5. In many areas, politicians appease their union friends by requiring work to be done at what is referred to as the prevailing wage (union wage levels), thus further exacerbating construction costs.
6. Governments impose price restrictions (rent control) on apartments, limiting the ability of a developer to generate sufficient revenue to justify a project.