The Outlook for Multifamily Housing in 2016Paul Winterowd
It is significant to note that the demand for rental housing has increased substantially since 2005, with 43 million families and individuals now living in rentals. To give that statistic context, that’s an increase of more than 26 percent in 10 years. This information comes from a Joint Center for Housing Studies at Harvard University (JCHS) report published in December of 2015.
JCHS research confirms that this increase is the largest gain on record in any 10-year period, leading to the highest number of U.S. households (37 percent) renting their housing since the 1960s.
There’s no question that this industry has seen a strong surge, but challenges remain. Below are the highlights of the outlook on the multifamily rental housing market for 2016 and beyond.
Affordable Housing is Difficult to Find
Finding affordable housing has become increasingly problematic for low- and moderate-income households. It may be due in part to the increase in total renters over the last decade, but the existing, tight rental markets have made it challenging for anyone seeking lower-cost rental options. One solution is to fund more multifamily apartment buildings, increasing the number of affordable housing options. Fannie Mae, Freddie Mac and FHA all offer financing options to motivate developers, investors, and owner-operators, who can provide more housing for everyone in the low- and moderate-income categories.
Understanding Today’s Renters
In March 2015, Freddie Mac commissioned the Harris Poll to survey adults to learn more about their perceptions re: renting in today’s market. The survey was conducted online, four times between August 2014 and March 2015. Of the 2,044 adults, ages 18 and up, that were surveyed, 672 or nearly 33% were renters.
One important finding is that rising rents are a contributing factor in evaluating new housing options, with a significant number of renters reporting that higher rents have impacted their plans, making it more difficult to purchase a home in the future. A number of renters also reported that they have changed their spending habits on essentials and non-essentials in order to be able to afford a higher rent, and are considering or have taken on a roommate to help with housing costs. These changes mark an important shift for owners of rental properties–there may be fewer renters in the future if affordable options do not become available in the marketplace.
Supply is Not Matching Demand
Since the housing market crashed in 2008-2009, a significant number of single-family homes have been converted into rental units. Today, small complexes with fewer than 20 units make up more than eight out of 10 rental properties, with two to four-unit structures accounting for over 60 percent.
Even with more single-family houses becoming rental properties, the number of moderately-priced units has failed to keep pace with the need. The end result is that many households have to pay 30 percent or more of their income just for housing, leaving them unable to pay for other essentials.
There is more than a bit of irony with this current situation. In 2015, more multifamily units were completed than in any year since the late 1980s, and yet demand continues to outpace availability. The key is to find a way to balance new construction and renovation of existing units with the ever-increasing need for affordable options to meet the growing demand of this segment of the rental market.