How Austin Slashed Rents by 22%: A Blueprint for Northern Kentucky and Cincinnati
We need more affordable housing
What happens when you increase the supply of housing? The evidence from Austin, TX, provides a compelling case study.
The Housing Crunch
The housing market has been brutal. It has been incredibly challenging for first-time homebuyers, particularly those seeking affordable housing. The price increases experienced over the past four years and the increased cost due to higher interest rates have squeezed out new buyers.
The economic solution to this problem is straightforward: increase the housing supply. But what happens when you do? Let's examine Austin's recent experience.
Austin's Rental Revolution
In 2021, rents in Austin skyrocketed by 25%. Occupancy rates peaked at 91.7%, creating a highly competitive market for renters.
Between 2023 and 2024, developers responded by adding 50,000 new rental units, a remarkable 14% increase in Austin's rental supply. The result? A 22% decline in rental rates. Today, the median rent is $1,399, down $400 from 2021 levels.
Economics 101 in Action
This is simple supply and demand economics. Want to reduce the price of a product? Make more of it available in the market. Austin successfully increased its rental housing supply while specifically targeting more affordable options.
Overcoming Developer Reluctance
Developers and investors typically hesitate to build affordable housing for two key reasons:
Affordable housing means smaller units
Returns are higher on larger units
Developers sacrifice higher returns when producing smaller, more affordable units. Austin's solution? The city supported developers with targeted incentives and subsidies to make affordable housing financially viable.
Replicability for Other Markets
This approach can be applied across different geographies and housing markets. For example, Northern Kentucky housing is predominantly built for families on large plots, with dense housing and smaller units in short supply. Cities like Covington and Newport, which should aim to attract younger residents, will need to implement similar incentives to encourage the development of appropriate housing units.
Five Policy Recommendations for NKY and Cincinnati
Density bonuses with affordability requirements - Allow developers to build more units than zoning typically permits and allocate a percentage designated as affordable housing.
Expedited permitting for affordable developments - Create a fast-track approval process that cuts months off development timelines for projects meeting specific affordability criteria.
Reduced parking requirements - Lower or eliminate minimum parking requirements for developments near public transit, significantly reducing construction costs. NKY and Cincinnati need to consider the public transit investments.
Tax abatements with sunset provisions - Offer property tax reductions for 5-10 years for developments that maintain affordability commitments.
Public land partnerships- Identify underutilized publicly owned land that could be leased long-term to developers specifically for affordable housing projects.
A report from the Northern Kentucky Area Development District, released in September of 2023, finds that region needs to build 6,650 housing units to support economic development in the next five years, which equates to 1,330 units per year. Of those, 3,000 units need to target affordable housing segment.
The Connection Between Rental and Homeownership Markets
While Austin's strategy has successfully reduced rental costs, what does this mean for homeownership? The relationship between rental and for-sale markets is important to understand:
Rental relief reduces pressure on homebuying: When renters face lower housing costs, they can save more effectively for down payments, making the transition to homeownership more accessible.
Market stabilization: A healthy rental market with reasonable prices creates less desperate homebuying, reducing the likelihood of bidding wars that increase purchase prices.
Developer diversification: When developers see success in affordable rental markets, they're more likely to experiment with affordable for-sale products.
The For-Sale Market Challenge
NKY and Cincinnati must recognize that their for-sale housing markets require similar attention. Currently, new construction predominantly targets upper-middle and luxury segments, leaving a significant gap in starter homes and affordable ownership options.
Additional Policy Recommendations for For-Sale Housing
First-time homebuyer assistance programs: Partner with local financial institutions to offer down payment assistance and favorable mortgage terms for qualifying first-time buyers.
Missing middle incentives: Create specific incentives for developers to build townhomes, duplexes, and other "missing middle" housing types that serve as natural stepping stones between renting and single-family homeownership.
Inclusionary zoning for new developments: A percentage of units in new for-sale developments should be priced affordably for median-income households.
Community land trusts: Establish non-profit entities that maintain land ownership while selling homes on that land, significantly reducing purchase prices while ensuring long-term affordability.
Rehabilitation grants: Provide financial assistance for renovating existing housing stock in older neighborhoods, increasing affordable for-sale inventory while revitalizing communities.
The Takeaway
Austin's experience demonstrates that decisive action on housing supply can dramatically improve affordability. By applying these principles to rental and for-sale markets, NKY and Cincinnati can create a housing ecosystem where residents at all income levels have viable pathways to secure housing that meets their needs—whether renting or owning.
The key is recognizing that these markets are interconnected: improvements in rental affordability directly support healthier homeownership opportunities. Our region can build a more resilient and inclusive housing future by implementing comprehensive policies that address both markets simultaneously.
What housing policies would you like to see implemented in our region?
Book Recommendation
Triumph of the City- Amazon Link
In this book, Edward Glaeser, a leading urban economist, declares that cities are actually the healthiest, greenest, and richest (in both cultural and economic terms) places to live. He travels through history and around the globe to reveal the hidden workings of cities and how they bring out the best in humankind. Using intrepid reportage, keen analysis, and cogent argument, Glaeser makes an urgent, eloquent case for the city's importance and splendor, offering inspiring proof that the city is humanity's greatest creation and our best hope for the future.
