Apartments Capitalize on the Trend toward Sustainable Development

The rental housing industry stands to benefit from a number of trends, including the increasing emphasis in urban planning and land-use policy to encourage compact development.

Apartment owners can be excused if they feel like gloating. Many of them watched in amazement as homeownership rates reached a record high of 69 percent, and young families could get a mortgage even if they could not qualify for a lease. Now, the pendulum is swinging the other way, and the apartment business looks primed for a powerful resurgence.

The rental housing industry stands to benefit from a number of trends, including the increasing emphasis in urban planning and land use policy to encourage compact development in infill locations where people can walk or take public transit. Policy makers are realizing rental housing is generally more sustainable because it is usually built at higher densities.

“Not only do apartments offer housing to a wide range of households, they can also help us meet critical national goals like reducing greenhouse gasses, growing more sustainably and creating mixed-use, pedestrian-friendly communities,” says Doug Bibby, president of the National Multi Housing Council.

The shift toward more sustainable development patterns is occurring in cities and towns throughout the nation, the Partnership for Sustainable Communities (PSC) has found. PSC is a national nonprofit organization dedicated to helping real estate developers and owners work with local government planners and development agencies to create more sustainable communities.

In California, multifamily buildings will play a crucial role in meeting the state-mandated goals for reducing per capita emissions of greenhouse gases from private vehicles. The state’s so-called anti-sprawl legislation (Senate Bill 375) requires every regional planning organization in the state to draw up a Sustainable Communities Strategy by changing land use patterns. Key to its success is higher density and focusing development of housing around transit lines.

The law encourages higher-density and transit-oriented development in two ways. It puts new teeth into existing law requiring localities to zone land for affordable housing. It also provides exemptions from very stringent state environmental review requirements for projects that provide affordable housing and are located near transit.

Many other states are also encouraging changes in land use patterns to help reduce greenhouse gas emissions. (You can review what’s happening in each state here.)

The flip side of the trend toward rental housing is reduced construction of single-family homes on large lots remote from jobs and services. Indeed, the homeownership boom ended with a thud as foreclosures skyrocketed, especially in cul de sac suburbs far from jobs and from which long commutes by car cost big dollars.

Even among companies who are developing rental housing, to an increasing extent garden apartments are out and infill developments are in. Some firms are still building garden apartments out in the suburbs, but the biggest apartment investors no longer see that as a smart investment for long-term holding periods.

Savvy developers such as Equity Residential, SARES REGIS and UDR, among others, are gearing up to resume development, and they are choosing “sustainable sites” near transit and services. They are even putting in car sharing services as a benefit for people who don’t want to own their own car or possess more than one car per household.

There is also good news on the financing front with regards to the creation of rental housing, and thereby more sustainable developments. The Obama Administration’s recent 32-page report to Congress on “Reforming America’s Housing Finance Market” calls for cutting way back on federal support for home mortgages but for maintaining a federal role in supporting financing for apartment properties.

NMHC says the nation is experiencing a boom in renter households that will continue for years to come. “We saw a surge of 2.7 million renters from 2005 to 2007 alone,” Bibby says. “Between 2008 and 2015, nearly two-thirds of new households formed will be renters. That’s 6 million new renter households,” he stated.

The new demographic groups are increasingly turning away from the one-time ideal of living in a single-family home on a large lot surrounded by other similar homes. A large proportion of them want to live near transit, and within walking distance of services and entertainment. That usually means renting. That’s good for apartment owners and developers. It’s also good for the sustainability of our communities.

There has also been a change in attitudes about the financial benefits of ownership. Until the recent spike in foreclosures, a large percentage of home sales were premised on the idea that buying was a financial investment, not just a way to obtain shelter. That is shifting dramatically as more and more households make housing choices based on lifestyle or even environmental factors, and no longer assume that owning is a good investment.

The new housing choices will be largely a function of changing demographics, according to NMHC. The aging members of the Baby Boomer generation are increasingly opting to trade in their suburban houses for apartments as they age and their children move away from home, NMHC says. According to Census data, 75 percent of all seniors will change housing type between ages 65 and 80.

A more powerful force for rental demand are the Echo Boomers, that is, the children of the Baby Boomers. By 2015, there will be 67 million people aged 20-34 year of age, the prime years for renting. A large portion of this population will be living in more sustainable rental communities.

Andre Shashaty is founder and president of the Partnership for Sustainable Communities, based in San Rafael, Calif. The organization offers extensive information on land use, entitlements and urban planning and design, including Sustainable Communities magazine and the On-Line Land Use Research Library. It also hosts the annual Sustainable Housing and Community Development Conference in San Francisco in September.