The National Multifamily Housing Council’s quarterly survey reveals that apartment markets continue to climb. The breakeven level of the NMHC’s Survey of Apartment Market Conditions is 50; the market tightness index rose from 56 to 68 from the first quarter of 2014. While this improvement is partially seasonal, “the index is higher than the average for the July quarter since the survey began 15 years ago.” There are four major reasons why multifamily housing has picked up in recent years.
1. Attitudes towards home ownership have changed Between lower levels of financial stability, the desire to live near active urban centers, and seeing people lose their homes (and all their equity) to foreclosure at alarming rates, many potential buyers have been put off of home ownership since the Great Recession.
2. Student loan debt is delaying home ownership With pay rates and career opportunities failing to outpace student loan debt payments, Millennials are choosing to continue renting rather than buy a new home.
3. Baby boomers are downsizing Aging boomers have found that the expense and effort to maintain their large suburban homes is both financially and energetically exhausting. Instead, empty-nesters are choosing to relocate to senior-centered multifamily residences near city centers which are convenient to activities, shopping, and medical facilities.
4. Lot shortages Because the housing bust of 2008-2012 flatlined real estate development, there are fewer development-ready properties in the development pipeline. As a result, developers are looking to acquire urban lots that are already zoned and on the utility grid that can be turned into multi-family high-rises, rather than trying to buy lots that can be built out into a subdivision.
The fact is, multifamily construction serves both ends of the economic spectrum. Between cash-flush boomers and retirees looking for luxurious but smaller quarters and financially strapped Millennials unwillingness to tackle home ownership, the demand for multifamily living will remain high for the foreseeable future. This is especially true of cities that are taking steps to revitalize their urban centers. The demand for multifamily housing is rising despite a looming inventory shortage and rather than struggle to acquire and develop new housing communities, many developers will be pouring their capital into remodeling, renovating, or replacing urban multifamily residences.