2016 saw big multifamily construction and rental rate increases, as well as low vacancy rates, in many metro areas.
Apartment developers and owners have enjoyed a robust multifamily market since the housing bubble burst in 2008. In fact, 2016 saw big multifamily construction and rental rate increases, as well as low vacancy rates, in many metro areas.
There were three main reasons:
- Rising home prices due to a shortage of inventory
- Tight lending practices
- The flexibility and lack of financial commitment renting offers
Millennials in particular have a tough time meeting today’s lending standards thanks to student debt and entry-level positions that make it hard to save for a down payment. (And of course, subprime mortgages are a thing of the past.) The ones who have put off forming a family in favor of a career and the single life are also enjoying the flexible lifestyle renting allows.
The minimal financial commitment involved with renting also appeals to a multitude of people, including many millennials and also gun-shy former homeowners who lost homes in the Great Recession and aren’t willing to dive back into the market yet, even if they can afford it.
Home prices rose throughout 2016 and continue to do so, largely due to an inadequate supply. According to the National Association of Home Builders, contractors are trying to keep up with demand, but a short supply of buildable lots in many markets, as well as a shrinking pool of skilled labor, has made that difficult. Add to that regulatory requirements that can increase the cost of a home by 25 percent, and the dream of homeownership moves further out of reach. According to a U.S. Census Bureau report last summer, the homeownership rate fell to 62.9 percent in the second quarter of 2016, its lowest level since 1965. (It has since rebounded slightly, to 63.7 percent.)
Ironically, increases in rents — a byproduct of the healthy multifamily market — are one of the primary reasons renters have a difficult time accumulating enough cash to put down on a home.
So what will 2017 bring?
Projected multifamily completions in 2017 should ease tight supply and boost vacancy rates slightly, maybe even to 5 percent for the first time since 2011. Demand should continue to support increases in rental rates, and most markets still have plenty of room for new multifamily construction starts, particularly the smaller, more affordable metro areas, such as Colorado Springs, Phoenix and Tampa, that have become popular with people seeking a lower cost of living.
Kim Slowey is a writer who has been active in the construction industry for 25 years and is licensed as a certified general contractor in Florida. She received her BA in Mass Communications/Journalism from the University of South Florida and has experience in both commercial and residential construction.