All key construction measures for multifamily housing rose by double-digit percentages in 2015, and demand for rentals (which continue to account for the lion’s share of that construction) is expected to remain robust over the next decade, according to “The State of the Nation’s Housing Market 2016,” which the Joint Center for Housing Studies at Harvard University released today.
That’s good news and bad news for renters, as vacancy rates continue to fall and rents continue to rise.
Growth in multifamily starts topped 10% for the fifth consecutive year in 2015, reaching a 27-year high of 397,300 units. Multifamily accounted for more than 30% of all housing starts last year, and permits—the barometer of future construction—rose 18.2% to 486,600 units.
More than 36% of all U.S. households opted to rent last year, the largest share since the late 1960s. Over the past decade, in fact, the number of renters increased by over nine million, the largest 10-year gain on record, with palpable demand across all age groups, income levels, and household types.
The number of renters increased by 9 million in the past decade, the largest 10-year gain on record. Image: Joint Center for Housing Studies' “The State of the Nation's Housing Market”
Somewhat counter-intuitively, given all the press about Millennials not being able to afford to buy a house, Current Population Survey data indicate that much of the jump in rental demand is coming from middle-aged households. Renters in their 50s and 60s rose by 4.3 million between 2005 and 2015. Renters aged 70 or older increased by more than 600,000 during that decade. And even though their cohort’s population actually dipped a bit, households in their 30s and 40s accounted for three million net new renters.
Households under age 30, by comparison, made up only one million net new renters. “reflecting the steep falloff in headship rates among the Millennial generation following the Great Recession,” according to the Harvard report.
The micro-apartment trend for urban markets seems to be having a greater impact on what’s being built overall. The median size of multifamily units fell from nearly 1,200 sf at the 2007 peak to 1,074 sf in 2015, reflecting the shift in the focus of development from the owner to the rental market.
Many new multifamily units are in large structures, with nearly half of the units completed in 2014 in buildings with 50 or more apartments. And about 36 percent of all new multifamily units added between 2000 and 2014 were in high-density neighborhoods, and another 30 percent each in medium- and low-density sections of metro areas. Even so, growth in the multifamily housing stock during this period was even more rapid in rural areas (up 24 percent) than in urban areas (up 19 percent).
The Joint Center has long decried the scarcity of affordable housing in the U.S. A sizable percentage of the multifamily buildings under construction targets higher-end and luxury renters. In addition, the rental vacancy rate last year fell to a 30-year low of 7.1%, a telling indication that supply isn’t keeping up with demand, and that rent appreciation is likely to present challenges for renters at all income levels.
Still, the report postulates that expanding construction of market-rate multifamily product “should provide some slack to tight markets, as older units slowly filter down from higher to lower rents.” And if construction sates high-end demand, “developers in some areas may turn their attention to middle-market rentals,” the report speculates.
The report acknowledges, however, that high development costs make building new units of affordable or even moderate-income multifamily difficult without government subsidies. And absent of public subsidies, “the cost of a typical market-rate rental unit will remain out of reach for the nation’s lowest-income households.”
The Joint Center concludes that with housing assistance insufficient to help most of those in need, “the limited supply of low-cost units promises to keep the pressure on all renters at the lower end of the income scale.”
It’s still not certain how these dynamics will impact homeownership, even when buying is still more affordable than renting in 58% of U.S. markets, according to RealtyTrac’s 2016 Rental Affordability Analysis.
“Renters in 2016 will be caught between a bit of a rock and a hard place, with rents becoming less affordable as they rise faster than wages, but home prices rising even faster than rents,” said Daren Blomquist, Vice President at RealtyTrac. “In markets where home prices are still relatively affordable, 2016 may be a good time for some renters to take the plunge into homeownership before rising prices and possibly rising interest rates make it increasingly tougher to afford to buy a home.”
Mixed-Use | Jun 6, 2023
Public-private partnerships crucial to central business district revitalization
Central Business Districts are under pressure to keep themselves relevant as they face competition from new, vibrant mixed-use neighborhoods emerging across the world’s largest cities.
Multifamily Housing | Jun 6, 2023
Minnesota expected to adopt building code that would cut energy use by 80%
Minnesota Gov. Tim Walz is expected to soon sign a bill that would change the state’s commercial building code so that new structures would use 80% less energy when compared to a 2004 baseline standard. The legislation aims for full implementation of the new code by 2036.
Student Housing | Jun 5, 2023
The power of student engagement: How on-campus student housing can increase enrollment
Studies have confirmed that students are more likely to graduate when they live on campus, particularly when the on-campus experience encourages student learning and engagement, writes Design Collaborative's Nathan Woods, AIA.
Multifamily Housing | Jun 1, 2023
Income-based electric bills spark debate on whether they would harm or hurt EV and heat pump adoption
Starting in 2024, the electric bills of most Californians could be based not only on how much power they use, but also on how much money they make. Those who have higher incomes would pay more; those with lower incomes would see their electric bills decline - a concept known as income-based electric bills.
Multifamily Housing | May 30, 2023
Boston’s new stretch code requires new multifamily structures to meet Passive House building requirements
Phius certifications are expected to become more common as states and cities boost green building standards. The City of Boston recently adopted Massachusetts’s so-called opt-in building code, a set of sustainability standards that goes beyond the standard state code.
Multifamily Housing | May 30, 2023
Milhaus, Gershman Partners, and Citimark close on $70 million multifamily development in Indy
Versa will bring 233 studio and one- and two-bedroom apartments to Indianapolis's $271 million, Class-A Broad Ripple Village development enterprise.
Multifamily Housing | May 23, 2023
One out of three office buildings in largest U.S. cities are suitable for residential conversion
Roughly one in three office buildings in the largest U.S. cities are well suited to be converted to multifamily residential properties, according to a study by global real estate firm Avison Young. Some 6,206 buildings across 10 U.S. cities present viable opportunities for conversion to residential use.
Multifamily Housing | May 19, 2023
Biden administration beefs up energy efficiency standards on new federally funded housing
The Biden Administration recently moved to require more stringent energy efficiency standards on federally funded housing projects. Developers building homes with taxpayer funds will have to construct to the International Energy Conservation Code (IECC) 2021 for low-density housing and American Society of Heating, Refrigerating and Air-Conditioning Engineers ASHRAE 90.1 for multi-family projects.
Sponsored | Multifamily Housing | May 19, 2023
Shear Wall Selection for Wood-Framed Buildings
From wall bracing to FTAO, there are many ways to secure the walls of a building. Learn how to evaluate which method is best for a project.