What’s Happening To Small Apartment Buildings In The United States?

Back in the 1970’s and 1980’s it wasn’t uncommon to see many small apartment buildings in neighborhoods across the United States but things began to change in the mid 1990’s and now it’s rare to see small apartment style buildings like condos or town homes constructed anymore.

The decline in small apartment building construction can be traced to a variety of factors that’s why in this article we are going to examine why fewer small apartment buildings are being built in the United States.

Only 27,000 Small Apartment Buildings Were Constructed In 2017

2017 was a huge year for apartment construction in the United States because 358,000 multifamily properties were built but, only 27,000 small apartment buildings (2-9 units) were built. This statistic stands in sharp contrast to the 288,000 units that were built in 1973.

Why are more large scale apartment buildings being constructed versus smaller units? The reasons are complex but here are some of the most common reasons:

Much of the shift has to do with the rise of no-growth, not-in-my-backyard politics since the 1960s. This political movement has been strongest in homeowner-dominated suburbs, and as a result, as BuildZoom chief economist Issi Romem showed in a remarkable study earlier this year, almost all the housing construction in expensive, space-constrained coastal metropolitan areas such as Boston, Los Angeles, New York, San Francisco and Seattle is now happening in and around established urban centers. The residential suburbs of these areas have effectively gone dormant, shunting new construction to the neighborhoods — mostly in or near old urban cores — where the neighbors either don’t object (because they’re in commercial buildings) or don’t have much political clout (because they’re low-income renters), and local elected officials see benefits in a growing population. In such places, big apartment buildings generally make more sense than duplexes. Also, as barriers to new construction — land costs, labor costs, permitting costs, zoning rules, Nimby opposition, etc. — have risen, the threshold project size needed to turn a profit has increased even in less expensive metro areas.

Another factor is that limited partnerships, limited liability companies, real estate investment trusts and the like have taken over from individuals as the dominant players in multifamily housing, and these institutional investors tend to be more interested in (and capable of) developing big projects than in building fourplexes here and there. Non-individuals owned 71 percent of all rental units in multifamily buildings and 94 percent of those in buildings with 50 or more units in 2015, when the Census Bureau last asked around, and those percentages have been rising since at least 2001. It’s apparent in the above charts (especially the third one) that the shift from small multi-unit buildings to big ones accelerated after the mid-1990s, which happens to be right after the Resolution Trust Corp., the government entity charged with cleaning up the aftermath of the savings and loan crisis, went to great lengths to create an institutional market for such properties.

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