Analysis: Atlanta has plenty of new luxury apartments... but ‘low-cost rentals’ are dwindling

Georgia Tech professor says ‘time is now’ for investment in affordability

Midtown. Buckhead. All along the Atlanta Beltline’s Eastside Trail. In these desirable parts of the city, construction cranes and work crews are busy building apartment after apartment, then moving quickly to yet another spot to repeat the process.
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? What is being built, however, has almost entirely been luxury apartments — and very few affordable units.
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?Those units have actually been lost at the rate of around 4.4 percent each year, according to an analysis conducted by a Georgia Tech professor who’s considered an expert on housing finance issues.
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? Professor Dan Immergluck, one of the first researchers to note in 2007 that home prices along the then-undeveloped Atlanta Beltline were spiking and creating the risk of displacement, looked at the change in the number of Atlanta units that rent for less than $750 a month. Immergluck refers to them as “low-cost units.”
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? The professor, who’s testified before Congress and written extensively about housing and foreclosures, is careful in his analysis to qualify his findings. He points out the nuances of census data and how trends such as post-recession conversions from foreclosures to rentals and other factors could affect some findings. We’ve embedded his full analysis at the end of this post so readers can see those finer points and let us know what we might have glossed over.
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? But according to the data available, the picture for affordable housing in Atlanta is not pretty. And he says policymakers and elected officials should take action now.  
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? Early on in the analysis, Immergluck cites data by Haddow and Company, a real estate research firm, which observed that, “as of March of this year, there were over 11,000 apartment units under construction with another 9,000 proposed. The great bulk of these are luxury units. From 2012 to 2014, according to the CoStar Group, 95 percent of rental units built in Atlanta were luxury units.”
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? The rent of these new units hover around $2 a square foot, putting them out of reach for families living on low incomes. In addition, many of the luxury units are close to the services people living on low incomes need, job centers where they can work, and transit options they rely on as a mode of transportation. 
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? Using census data, Immergluck found that 70 census tracts, more than half of the census tracts in the city, saw a “measurable decline in low-cost units, while only 27 tracts saw measurable gains (the remaining tracts saw no measurable gain or loss). More importantly, only 14 tracts saw gains of more than 50 units, while 52 tracts saw losses of more than 50 units, with 26 of these experiencing losses of more than 100 units.” Neighborhoods with relatively high poverty rates tended to see the highest declines and increases in low-cost rental units, Immergluck found. 
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? “in some high-poverty neighborhoods, there was significant conversion of foreclosed properties to low-cost rentals,” he says. “In other neighborhoods, however, the disinvestment in the low-cost rental stock overwhelmed any conversions to rental properties. This may have been due to gentrification pressures, or to other factors.”
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? Rentals under $750 a month make up just one segment of affordable housing. But that segment is “shrinking at an appreciable rate,” Immergluck writes, “almost 5 percent annually. Meanwhile the supply of luxury units continues to grow without significant positive spillover on the affordable segment of the market.”
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? So shouldn’t all these high-cost rentals in the long run eventually bring down the rental rates of low-cost units? Immergluck argues that is not the case. This is a long chunk of text, but worth reading:
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? ?? Those without an understanding of the segmented nature of housing markets may leap to the conclusion that the increasing supply of luxury units will lower the cost of lower-end units by increasing the overall supply of rental housing. There is a serious problem with this logic. First, as the industry follows a herd mentality by chasing the luxury rental market, owners of, and investors in, lower-cost units may disinvest out of more affordable units, converting them to upscale, much more expensive units or demolishing them to make way for luxury units or nonresidential uses. While the increased development of luxury units may have a marginal negative effect on high-end rents, this activity may actually draw capital away from the more affordable sector leading to disinvestment and shrinkage of that supply. The two ends of the market are in-fact segmented from each other, but they compete for land and capital and so the proliferation of the luxury market may, in fact, result in less on the more affordable end. Meanwhile, those with modest incomes may be faced with higher rents in the lower-cost segment of the rental market, or may even try to stretch themselves – perhaps too far - to afford a small but expensive unit in the luxury market.
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? Immergluck points out that Invest Atlanta and some Atlanta City Councilmembers have presented some potential solutions and strategies to address the affordability issue, one that often does not see progress until it’s too late. And they have said they want to move forward with some of the ideas. Immergluck urges them to do so — plus find the cash to make those proposals become reality. He writes:
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? ?? In addition to a meaningful inclusionary zoning ordinance, the city will need to identify a significant source of funds to provide for the construction and rehabilitation of truly affordable units, especially for those families earning less than 80 percent of the metropolitan median income. (The needs of those earning below 50 percent of the metropolitan median are the most acute.) The evidence is clear that quality affordable housing, especially when linked to good public services such as transit and education, is a key to economic opportunity and mobility. The time for such investments is now. ??
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