Apartment Markets and the Cascade of Demand

24 Pages Posted: 16 Apr 2018

See all articles by Calvin Schnure

Calvin Schnure


Alexandra Thompson

National Association of Real Estate Investment TrustsĀ®

Date Written: March 30, 2018


Housing markets still display significant dislocations that developed during the Great Financial Crisis (GFC), including low rates of homeownership and household formation, low levels of total housing construction, low vacancy rates, housing shortages and issues with affordability. Yet amidst these dislocations, the construction of multifamily housing units has surged to a historically high level, and the share of construction represented by top-tier and luxury apartments is well above historical averages. Given that housing units of different quality, age, level of amenities and location are imperfect substitutes, the large supply of top-tier apartments suggests the rent premium they command over mid-tier and older apartments would diminish. The rent premium enjoyed by newer apartments, however, has risen by a large amount.

We explore these divergent trends by documenting a cascade of excess demand across various strata of the housing markets, from owner-occupied single family homes to newly-constructed multifamily units, and on to older, workforce housing and affordable housing. The flow of diverted homeowners is large relative to past and current levels of construction, relative to the pace of household formation, and relative to the size of programs to assist low-income rental households. The key to understanding the contradictory trends in housing market conditions, and in designing a policy strategy for alleviating rent burdens and affordability problems, is to consider the entire range of types of housing across which this cascade of demand flows.

Keywords: homeownership, multifamily construction, affordable housing

JEL Classification: R31, R32, R38

Suggested Citation

Schnure, Calvin and Thompson, Alexandra, Apartment Markets and the Cascade of Demand (March 30, 2018). Available at SSRN: https://ssrn.com/abstract=3153116 or http://dx.doi.org/10.2139/ssrn.3153116

Calvin Schnure

Nareit ( email )

1875 I Street, NW, Suite 500
Washington, DC 20006
United States

Alexandra Thompson (Contact Author)

National Association of Real Estate Investment TrustsĀ® ( email )

1875 I St. Suite 500
Washington, DC 20006
United States

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