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The Future of Multifamily Housing, in 5 Easy Steps

by Peter Thomas Ricci

Multifamily housing has been the darling of the post-boom housing market, but can it sustain its levels of success in 2014 and beyond?

A couple weeks ago, amidst headline-grabbing reports on home sales and construction, there was a little, tucked-away news item that probably said more about housing than anything else reported on – in 2013, rental vacancies were at their lowest level since 2000.

It was just the latest confirmation of the boom in multifamily housing, which has been going strong since the collapse of the single-family market in 2008. Now that single-family homes are making their own comeback, though, what does the future look like for multifamily housing? Here are three things to consider:

1. Economic Drivers are on Multifamily’s SideAccording to Kim Betancourt, a director of economics at Fannie Mae, there are a number of factors contributing to multifamily housing’s sustained performance, namely: an improving job market; new household formations, and a lush supply of new apartments to meet that demand; and lastly, rising home prices, which make owning more difficult for younger consumers.

2. There’s a Whole Lotta Supply – We mentioned high supply of apartments in our previous point, and we weren’t kidding. According to the Wall Street Journal, rental apartments’ share of new housing is at a 40-year high, accounting for roughy a third of 2013’s housing starts (that’s up from roughly 20 percent in the boom years).

3. Young American (Renters) – Younger Americans are primarily renters, and as the Journal explained, it’s not just their propensity for walkable, dense environments. Additionally, mortgage lending remains tight, wage gains have been nonexistent and student debt a force to be reckoned with – thus, young adults who may want to own must instead rent.

4. Not Just for Youngins – Renters are generically seen as younger, but of course, the demographics are far more nuanced than that. In fact, short-term rental demand likely won’t come from younger consumers, but from baby boomers who are either downsizing, moving into retirement or entering empty nest-hood.

5. A Threshold Will Arrive – Of course, all economic growth tapers at some point, and multifamily housing will be no exception. As David Brickman, the executive vice president of Freddie Mac Multifamily, framed it in a recent analysis, “As the broader economy continues to grow, we expect the overall multifamily sector to remain strong in 2014. Revenue growth in the industry will continue to perform near or above historical averages, but at lower rates than the previous two years.”

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Comments

  • Greg Nagel says:

    Rents are at all time highs, is that sustainable? With interest rates rising, and if rents taper off, will Multi-unit properties start to sell for lower multiples as they are selling at all time highs as well?

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