Policy makers miss housing's sweet spot: The American Middle Class
It’s been said both political parties left the middle class behind – catering either to the very rich or the very poor.
But it’s not just political parties who are guilty. Apparently, policy makers and the free market are missing the sweet spot when it comes to the most underserved housing market – the middle-of-the-road rental market, which is comprised of Americans who make somewhere between $30,000 to $60,000 a year and who are looking for affordable rentals.
The Joint Center for Housing Studies out of Harvard University touched upon this issue in a recent report, which showed a large portion of the rental market paying 30% to 50% of their monthly incomes on housing.
But the big problem is not the lower social classes, contends Kevin Finkel, executive vice president of Resource Real Estate. Instead, it’s the multifamily market, and that particular market lacks affordable rentals for middle-income Americans.
Apparently, Jimmy McMillan, the guy who runs around New York saying, "the rent is too damn high" is on to something, Finkel's team suggests.
But the real truth is the middle-class is not dwindling, it’s ranks are actually growing, Finkel claims.
"People who had been moving forward without college educations (or with them) – getting ahead of where the middle class was -- are now falling back into the middle class," he says. Other members of this new middle class are college graduates, who are stifled by student debt payments and a desire to find apartments that are both affordable and safe.
The problem, says Finkel, is the product they want is not out there in the multifamily segment. And new multifamily construction seems to come in the form of Class-A multifamily housing that caters to higher-income professionals. So will private capital jump in and provide the multifamily market the financing that is needed?
Not likely, says Finkel.
This middle-class group needs affordable, multifamily housing where the rent runs somewhere between $750 to $1,100 per month. Yet, he says, "given the cost of new construction today, in order to make the financing work, developers would need to charge $2,000 a month for an apartment. This is why when you look at new supply in the apartment world, it’s all Class-A rentals in city centers in downtown areas where high-end, educated renters are going to come," Finkel explained.
There is virtually no multifamily development for the middle-class, and the only hope would be a government incentive to provide financing for this type of construction product – something that Finkel sees as impossible in today's political environment.
But his company, Resource Real Estate, is focused on taking the existing inventory of dated multifamily properties, buying them and turning them into the types of properties that could easily serve the middle-income market, offering rents in the $750 to $1100-range.
With more middle-income Americans dealing with dings in their credit scores, buying homes also is less of an option for them.
With the typical apartment now dated – averaging 39 years old – Finkel says building rehabilitation is the key. His firm’s goal is to add value to these units through amenity improvements to make the buildings a potential market choice for middle-class Americans.
This group also needs mobility, so even if they can buy a home, it’s becoming less likely, he explained.
"They don’t want the risk. Maybe they experienced what happened, and they don’t want the risk of a highly leveraged home," he noted. "The middle class today is different than the middle class 30 years ago that worked at one factory for their whole lives. They need to be able to move if they have to get a new job. There is much less job security."