A recent city housing report found Madison must add 1,000 rental units each year to keep pace with demand. Officials said high demand and low vacancy rates will hurt low income groups disproportionately.
The report predicts demand for rental housing will continue to increase into the foreseeable future and makes three recommendations to expedite new development. Despite the number of new construction projects around Madison, the increased demand is no surprise to city officials.
The report highlighted Madison’s unhealthy vacancy rate, which stands between 2-3 percent, and said even the addition of 1,000 units today would not raise the rate to the optimal 5 percent.
The report cited an increasing preference for renting among residents, especially among Epic employees, and population growth among the factors driving demand.
Ald. Zach Wood, District 8, said it can be disheartening when so many new developments are occurring throughout the city and there seems to be no effect on the vacancy rate.
“Baby boomers and millennials are both overwhelmingly favoring renting over homeownership and this may be a trend we see continue,” Wood said.
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Ald. Mike Verveer, District 4, said the vacancy rate imbalance hurts those with less purchasing power the most.
Verveer said the city is using affordable housing programs to put wage limits on certain developments to alleviate some of the pressure on low income households. He said though the report offers strategies to increase apartment construction, he believes the city should focus on creating affordable housing.
Affordable housing is defined as costing less than 30 percent of an individual’s or household’s income.
The report recommended the city monitor the rental market closely, have more developers on city committees and create a development initiative to encourage new projects.
Wood said it’s important for the city to keep a closer eye on the rental market so it may proactively address market changes. Still, he admitted the city can only do so much in the face of powerful market forces.
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Verveer said developers will likely continue proposing new projects to keep up with demand. He said he does worry a decision by the Federal Reserve to raise interest rates, which would make loans more expensive, could cause a slow in new projects and ultimately result in rent increases.
Wood said the city will conduct another study focusing on student rent rates, and he hopes it will help the city address rising rent costs. Data from the report showed the vacancy rate to be lowest around campus and continues to barely accommodate demand.
Wood acknowledged he had no ideas on how to address student rent hikes given the fact that rising prices is one of the driving forces behind new development.
“If we knew an answer to that, we would be doing it right now,” Wood said.