Skipping the amenities may be a key to building more affordable apartments, according to new consumer research that shows that the most-valued amenity is frequently “low rent.”
One way to provide more affordable rental options is by building smaller apartment communities without amenities or with fewer amenities, the research says.
- Reliable cell reception (78 percent)
- Secure resident parking (71 percent)
Just 60 percent desired a swimming pool, and 55 percent wanted a fitness center, writes Adam Artunian, Vice President, and Pete Reeb, Principal, of John Burns Real Estate Consulting.
“As rental rates continue to rise nationwide, rental affordability has become a big concern and the need for affordable rental options has never been greater,” Artunian and Reeb write.
“Our Burns Intrinsic Apartment Rent Index, which measures apartment-rent valuation based on the long-term median ratio of rents to incomes, suggests that about half of the major markets in the country are overvalued by more than 5 percent and many by 10+ percent. San Francisco East Bay Area rents are 13 percent higher than they should be, meaning that we think a 13 percent correction is needed to get back to norm. This likely will not happen until the next recession.”
Multifamily developers’ focus on expensive urban markets pushes up apartment prices
Developers’ focus on building Class A apartments in expensive urban markets over the last decade increased the number of higher-priced apartments. At the same time, rents rising faster than inflation and investors’ thirst for value-add opportunities decreased the overall supply of lower-priced apartments.
Building smaller apartment communities or communities not focused on amenities – in fact skipping amenities – can provide more affordable rental options. Forgoing traditional community amenities (pool, fitness center, etc.) reduces development and operating costs, allowing for more affordable rental rates. Consider the following:
- Zoning laws and high land prices often make it difficult to build housing that low- and moderate-income people can afford.
- Many renters don’t want to live in a 400-unit apartment complex because they feel less safe, and like they are just a number. These people prefer small communities and are willing to have fewer amenities.
- Land is scarce in infill neighborhoods close to jobs, limiting the feasibility for large communities with amenities.
Smaller, low-rise apartment communities may be a key to affordability and skipping the amenities
54 Woodstock in Portland is an example of a small apartment community with no amenities. The community is pet-friendly and includes bike storage, surface parking, individual utility meters, outdoor mailboxes, and wifi. The community has a high walk score (73) and is within a few miles of downtown Portland.
“We suggest looking for locations where the amenities are nearby and free,” the authors write. Below are a few strategies to keep in mind:
- Walkability. Locations with easy access to parks, restaurants, shopping, and/or mass transit command high rents. Advertise your proximity to the local fitness center, park/community pool, hiking/bike trails, and dog park. If applicable, promote high walk or bike scores. Market the surrounding neighborhood as the amenity.
- Create community. Allow your tenants to create a “high-touch” community where they can come together to enjoy life. Groups that do things together are wonderful amenities, and they are free. Social connection can be a wonderful amenity.
- Nearby businesses. Build partnerships with the local fitness centers where residents get discounted monthly gym fees, yoga/cycling classes, etc.
About the authors and John Burns Real Estate Consulting:
“The rental market has changed, providing developers with great opportunities. If you have any questions, please contact Adam Artunian at (949) 870-1213 or Pete Reeb at (858) 281-7216, and we will put you in touch with the expert you need.”