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Can the Multifamily Boom Last?
John Caulfield / BUILDER / January 29, 2013
Multifamily is trending upward, but when it will peak depends on whom you talk to.
Home starts of structures with five or more units, which rose 56% and 38% respectively in the past two years, are expected to be up again, by 22% to 299,000 units, in 2013, according to NAHB estimates. But several builders in the audience of a seminar at which the association presented its projections during the International Builders’ Show last Thursday openly challenged NAHB’s 2013 and 2014 forecasts as being too low and not adequately reflecting what they saw as the increasing share of total starts that rental properties are likely to capture.
Robert Dietz, NAHB’s assistant vice president, tried to put NAHB’s findings within a larger context of events that are driving the housing market’s recovery. Housing, he noted, is contributing positively again to the nation’s GDP growth. The country has also recovered 5 million of the 9 million jobs it lost during the economic recession, and household formation has been rising over the past six quarters to an annualized rate of 850,000. “We see these trends as moving in the right direction,” Dietz said.
As a result, demand for new homes is rising, and construction is scrambling to keep pace. Single-family starts rose by 23% in 2012 and still were only 44% of the 1.3 million starts that NAHB deems as “normal.” The trade group estimates that single-family starts will jump by 22% and 30% over the next two years, to an annualized rate of 844,000 units.
By 2014, builders should also be building structures with five or more units at an annualized rate of 317,000 units, which would be 6% higher than in 2013. A sizable portion of those multifamily units could be rental apartments to meet shifting demand. Dietz pointed out that over the past three or four years, virtually all of the country’s net gains in household formation have been renters.
He also compared homeownership rates in 1992 and 2011. In every age group, those rates were down: by 2.2 points for 50-plus owners, 5.5 points for owners 35 to 49, 6.9 points for owners 25 to 33, and 3.1 points for owners under 25 years old. “Some of these people will never become buyers,” he conceded.
That being said, Dietz is optimistic about ownership rates going up again. Rents are rising and home values are increasing, making ownership a more attractive proposition. He also noted that new-home construction is soaring in strong job centers, like San Jose, Calif.
Dietz acknowledged that student and household debt could sustain rental demand for a while and forestall household formations. However, he suggested that multifamily starts might peak by 2014, a forecast which received some pushback from audience members. One countered that demand for rental could actually intensify now that it’s no longer the federal government’s policy to push for a 70% homeownership rate. Two other audience members noted that rising real-estate taxes in places like New York are just as likely to mitigate ownership.
Dietz admitted that NAHB is being conservative in its projections about multifamily. However, he also pointed out that there’s already an oversupply of rental in certain markets. As for the property tax issue, Dietz said that remains an unknown, but could be addressed in future tax-reform legislation.
John Caulfield is senior editor for Builder magazine.