With few rentals available, states push local officials to allow more housing

Nineteen states had rental vacancy rates below 5% in 2022.

By: - April 27, 2023 8:00 am
Tenants in Los Angeles held a protest earlier this year against the sale of their rental building to investors.

Tenants in Los Angeles held a protest earlier this year against the sale of their rental building to investors. California is one of 19 states with a rental vacancy rate under 5%, which indicates a severe housing shortage. (Damian Dovarganes/The Associated Press)

In Massachusetts, where available rental apartments are scarcer than anywhere else, there’s a political battle raging over whether suburban towns should help boost the housing supply by allowing denser development.

Similar debates have erupted all over the Northeast and West Coast, as officials in states with housing shortages scramble to keep their residents — and to combat homelessness — by promoting the construction of new homes. However, high construction costs make it likely that much of the state-mandated new housing will be unaffordable for many middle-class renters.

Rental vacancy rates, the percentage of apartments available to rent, are reaching troubling lows in much of the country. Nineteen states had rental vacancy rates below 5% in 2022, up from nine states in 2017, according to federal housing data. That’s the threshold considered by many experts to be a sign of a severe housing shortage, which can drive up rents and make it difficult for people with moderate incomes to find a place to live.

The entire West Coast is in that category, as well as much of the Eastern seaboard and fast-growing Idaho (with a 4% vacancy rate) and Utah (4.5%).

Of the 12 states with the highest homelessness rates, more than 200 per 100,000 people, eight have rental vacancy rates under 5%: California, Vermont, Oregon, New York, Washington, Maine, Delaware and Massachusetts, according to a Stateline analysis.

California’s rental vacancy rate was 3.9% in 2022. The state is trying to implement a five-year-old law that requires local governments to either permit enough new homes to reach statewide housing goals or fast-track the construction of new apartments. The governors of Oregon and New York, where the rental vacancy rates are 4.1% and 4.3%, respectively, also are pushing local leaders to allow more housing construction.

Many other states with low rental vacancy rates already have plans to mandate or at least encourage more apartments, especially around transit hubs. Utah’s Republican-led legislature, for example, passed a bill last year creating incentives for cities to plan moderate-income housing.

In Connecticut, where the vacancy rate is 3.3%, third lowest in the country, most towns missed a deadline last year to file plans for more affordable housing. Of the state’s 169 towns, 135 had filed plans by March 30, according to the latest state report.

The other states that had rental vacancy rates below 5% last year were Montana (3.2%); Vermont and Delaware (3.5%); New Jersey (3.7%); Maine (4.0%); Colorado (4.1%); New Hampshire (4.3%); Kentucky (4.5%); Rhode Island and Wisconsin (4.6%); Washington state (4.7%) and Virginia (4.9%).

Nationwide, the 2022 rental vacancy rate was 5.8%, a level that before this decade hadn’t been reached since the mid-1980s.

Massachusetts has the lowest rate in the country, at 2.8%. That level essentially means that no apartments are available, since a small percentage of apartments are always vacant for renovation or awaiting renters who have already signed a lease.

A new Massachusetts mandate requires communities to allow more apartments near suburban transit hubs such as train stations. Some towns, such as the Boston suburb of Lexington, have embraced it. But others, such as Middleborough, are resisting it. Middleborough officials say they want more affordable housing but that the rent would be too high in some of the proposed buildings.

Today, a new two-bedroom apartment in suburban Massachusetts is likely to rent for almost $3,000. Supporters of the housing requirements argue that increasing the overall housing supply is likely to moderate prices in the future.

“This is a blue-collar town,” said Mark Germain, chair of the Middleborough Select Board. Germain said the town is building affordable housing near the train station as fast as it can. However, it doesn’t want hundreds of new market-rate rentals, he said, because those would tax the town’s sewer plant and be out of reach for working-class people.

“New construction adds supply primarily at the upper end of the market,” a Harvard housing study concluded last year. Nationally, the report noted, the typical rent for a newly built apartment surpassed $1,700 in 2021.

Middleborough has exceeded the state mandate that 10% of its housing stock be affordable, and is planning for hundreds more affordable units, Town Manager James McGrail said in a statement. The Select Board voted against filing a plan for more apartments near the train station, though Germain said he hopes the state will consider the town’s accomplishments on affordable housing.

Two-bedroom apartments built under the state mandate would rent for $2,640 to $2,840 a month, Germain said, more than local working-class families can pay. Median rent for an existing two-bedroom apartment in the Boston area is more than $3,300, according to Zillow statistics, but still only about $1,670 in Middleborough.

Mike Kennealy, the former Massachusetts housing secretary who helped implement the new state mandate last year, said the state must plan for new housing, especially rental apartments, even if high construction costs mean that many new units will be relatively expensive.

“It’s not just an affordable housing crisis in our state — it’s a housing crisis, period. We need more of all types of housing,” Kennealy told Stateline. He added that a 2020 law allowing local zoning boards to approve changes with simple majorities instead of a two-thirds vote paved the way for the new mandates.

The rental vacancy rate should be at least 6% to 7% to ensure that tenants have negotiating power to fight off unreasonable rent hikes and avoid eviction, said Matthew Lewis, a spokesperson for California YIMBY, a group that advocates more privately built construction to alleviate housing shortages.

Lewis said new construction, even if it’s expensive now because of high material and labor costs, will curb high housing prices in the long run.

“More construction will solve housing problems for every level except low income, which needs subsidies. But if you don’t build the housing for other groups, you don’t attract the income to pay for the subsides,” Lewis said.

There is some research to support the idea that a reasonably high rental vacancy rate is necessary to give tenants bargaining power. For example, a 2020 North Carolina State University study concluded that higher vacancy rates lead to lower rents. Freddie Mac’s chief economist wrote in 2021 that the nation needs to build 3.8 million housing units to solve a shortage and get overall vacancy rates, both homes for sale and rentals, up to 13.5%.

But not all scholars agree. The logic doesn’t necessarily hold in states such as Kansas with relatively high rental vacancy rates in rural areas and lower rates in cities and suburbs, said Kirk McClure, a professor emeritus of urban planning at the University of Kansas who has studied vacancy rates.

“There is a kernel of truth to this connection between rental vacancy and rents, but it’s weak,” said McClure. “Markets with high vacancy rates do not have dramatically higher rents, and markets with lower vacancy rates do not have dramatically lower rents. The driver of rents seems to be the overall economic conditions of the market.”

To McClure, high housing prices can be a sign of economic success.

“Every time a family leaves a rural county in Kansas, they leave a house behind. Usually there is little or no demand for this house,” McClure said. “Where jobs and wages are growing, demand is pulling up rents independent of vacancy rates. Our star markets like New York, San Francisco, and Washington, D.C. are examples of this.”

Kansas has one of the highest vacancy rates in the country at 8.5%. Only Oklahoma (8.6%), Indiana (8.8%), Arkansas (10.5%) and North Dakota (12.2%) have higher rates.

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Tim Henderson
Tim Henderson

Tim Henderson covers demographics for Stateline. He has been a reporter at the Miami Herald, the Cincinnati Enquirer and the Journal News.