5.6 million cheap apartments - not for long

[Jeff Kehl]

I just read this article on Bloomberg and wondered what others thought about it:

http://www.bloomberg.com/news/articles/2016-10-31/there-are-5-6-million-cheap-apartments-in-america-not-for-long

All the rage in rei these days is buying these apartments, fixing them up and raising the rents. It makes me wonder where all this is heading.

My own small town is a good example. New class A apartments are being constructed for around $100k/unit $1000+ monthly rent. Nothing less expensive than that is economically feasible to build. The local housing authority/builders getting tax credits are adding some stock. But I read the other day they're spending about $150k/unit on construction.

Here, a good affordable 2 bedroom apartment is around $500/month. Demand for them is very high because it's economically impossible to create any more of them.

The most interesting thing to me in the article is the chart showing when most of the apartments were built, the 60's and 70's during baby boomer times. We're just starting that with the millennials so that says a whole bunch of apartments need to get built and everything else being equal average rents should continue to climb... 

[Aaron Linden]

@Jeff Kehl I read this article this morning as well, thank you for sharing!

I think most places throughout the midwest are seeing the same thing happening. I think if we look at the math on a high level this will continue to happen (why would I buy an investment to lose money). However, all things are not equal. Most apartment dwellers in this country will not be able to afford rates going up as income stays stagnant. This, to me, means one thing. The government will step in in some form or another to control the situation. Whether that means subsidies or rent control I am not sure, but it is a question we should be trying to answer now rather than later. 

I would be very interested in hearing other opinions on this topic.