There's a crisis shaping up in housing in the U.S.
Here in the Coachella Valley, including Palm Springs to Indio, nine separate cities, there's building going on. There's hotels, retail, and single family homes.
But not multifamily. The economics of land, entitlements, construction, and the profit necessary to make it worth it to take on the work and risk mean that apartments meant for the working class (teachers, waiters, and retail clerks) aren't being built. The current inventory of apartments is old -- very old. In Indio, for instance, only four projects have been built in the last twenty years. And they were built twenty years ago. Everything else is old, and looks it.
Here's the problem. Rents have gone up, and vacancy rates have gone down, but it still doesn't pay to build a new building to earn the rents that the market is paying. Average rents in Indio, for instance, are about one dollar a square foot. A two bedroom apartment costs about $800 a month.
From an owner's viewpoint, about forty percent of that $800 goes to the expenses of running an apartment building. He's got insurance, maintenance, property taxes, utilities, capital improvements, and advertising. It's not cheap to run an apartment building. If an owner drops the ball, he can be accused of being a slumlord, or sued for a safety violation.
For the last few years, apartment buildings have been sold for about half of what it costs to build new ones. As long as it's cheaper to buy an old building, no one will build a new one. And they're not.
So, if we want a society that works, the classical system of capitalism isn't addressing the issue. Government has stepped in, in the past, by offering affordable housing subsidies. But in California, budget cutbacks have eliminated state money to encourage builders to build housing, decent housing, in the areas of where people work and families live and send their kids to school.
