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Construction Costs Are Rising Much Faster than Inflation Index 220 — - 200 - 160 160 —: 140 120 -' 100 -a 2001 2003 2005 2007 2009 2011 2013 2015 2017 —Co -Stn, Vacuum Commarcial Land Index — BLB Construction Cost Index r Conscuner Price Index Notes', The ALB Construction Cast Index measures the hid cost of construction, which !,,ludas lance building materials, and contractor fees. The Ca -sear Vacant Commerciol Land Index serves as a proxy for developable multifamily sites. Soumes: CaStarVacant Commemlal Land Index; ALB Construction Cost Ii and US Bureau of Labor Statistics, Consumer Price Index for All Urban Consumars. nearly 60 percent of new unfurnished units were built in the princi- pal cities of metro areas—up 10 percentage points from the period between 2000 and 2012. This trend appears to have continued in early 2017, with the share of rental completions in principal cities nudging above 65 percent. The supply of developable sites in central locations is extremely limited, which raises land prices and generally entails more exten- sive permitting, higher legal fees and site preparation costs, and the design of taller, more expensive buildings. According to the Survey of Market Absorption, these costs are reflected in the nearly 15 percent differential in median asking rents for new apartments built in prin- cipal cities ($1,600) than in suburbs ($1,390) in 2016. Regardless of location, though, new multifamily rentals are less affordable to the growing number of households with middle and lower incomes. The real median asking rent for newly completed multifamily units increased 27 percent between 2011 and 2016, to $1,480, while real median renter income increased only 16 percent over the same period. In addition to rising construction costs, this jump in asking rents also reflects increased construction of luxury apartments for higher -income renters. THE OUTLOOK Strong demand has sparked the addition of millions of rental units over the past decade. This growth has come from construction of new units, mainly in large apartment buildings, as well as conver- sion of single-family homes from owner occupancy. However, with the aging of the overall stock and new construction focused pri- marily on the high end of the market, concerns are mounting that the rental supply will have even less capacity to meet the needs of lower- and middle-income households or the growth in demand for accessible housing as the population ages. While local policymakers have little sway over the price of construc- tion materials, they do influence the amount of land available for high-density development, the process needed to gain approvals, and the characteristics of housing that is allowed—all of which help determine the amount, type, and cost of the housing that is built. Local governments can therefore promote construction of much- needed rental units (particularly lower -rent units) by expediting approvals; guaranteeing by -right development of small multifamily buildings, particularly those with affordable units; reducing parking and other property requirements; and allowing higher densities for projects that are transit -accessible. For their part, developers have increasingly adopted cost-saving technologies and switched to lower-cost building materials—for example, using plastics for plumbing and electrical boxes or relying more on prefabrication and modularization, which can significantly reduce waste and construction time. Collectively these efforts would reduce per unit development costs and the rents that households have to pay, ultimately encouraging more construction targeted to lower- and middle-income renters. Investments in energy efficiency would also provide long-term utility savings for tenants and could reduce maintenance costs for owners. Efforts to preserve the stock of older affordable rentals are also vital. Expanding existing approaches can help. For example, cer- tain states and localities allow the use of housing trust funds for operating and maintenance costs of affordable units, as well as for emergency repairs. The National Housing Trust Fund is also making a limited share of program funds available for these purposes. Real estate tax relief programs can also intent landlords to maintain their affordable units in good repair. Finally, programs that help nonprofits purchase lower -rent, unsubsidized units in exchange for affordability restrictions can help prevent further losses from the affordable supply, particularly in neighborhoods with rising rents.