“The Golden Age”. That’s how the chairman of the National Multifamily Housing Council (NMHC), Daryl Carter, described the period we’re in for the apartment industry. It’s no surprise the NMHC Annual Meeting I recently attended, along with 3,000 others, was filled with energy and optimism. Now, it’s no secret that multifamily is a hot market. But consider the following:
- Demand for multi-family continues to outpace growth in supply. This demand is coming from Millennials, Baby Boomers, and foreign entities, who are investing their capital in this market.
- The homeownership rate continues to decline. Last week the Commerce Department released their estimate of the homeownership rate, which reached 63.9%, the lowest level since 1988. This level is 1.2% lower than last year, which means 2 million more renter households were formed.
- Nationwide, rents continue to rise. In fact, Q4 in 2014 marked the 23rd straight quarter in which rents rose nationally. Rents are now 15.2% higher then they were at the end of the recession in 2009.
With all these contributing factors, multifamily investors and owners are very optimistic for 2015. But given that this market is driven by local supply and demand patterns, performance is very specific to each market. So let’s take a look at some areas that will benefit the most from this growth.
New York, San Francisco, Boston, Chicago and Miami will continue to see high demand for multifamily as reflected in their continued rent rate growth. Rents in these cities are all predicted to grow at similar rates to what they have been growing (~4-8%).
Atlanta and Los Angeles are poised to see even healthier growth rates than they have in the recent past. Atlanta was initially a laggard in the market recovery. However, 2015 will be a breakout year as developers look to catch up with demand. Similarly, the Los Angeles market is experiencing healthy job growth that will drive strong demand for multifamily.
While there is great momentum in the multifamily market nationally, Washington DC has not shared in this growth; in fact, it experienced a decrease in rent rates in 2014. DC is forecasted to be flat in 2015, indicating that supply has matched demand in the market.
Another market of concern is Houston – largely due to its dependency on the oil industry. With the dip in oil prices, forecasters are lowering their expectations of job creation in Houston. And fewer jobs mean less demand for multi-family housing.
Despite the few markets that have specific challenges, the market is vibrant and growing. Overall, the multifamily market is forecasted to start construction on approximately 400,000 units, equivalent to $67B, in 2015. Perhaps Mr. Carter isn’t overstating when he calls this the “Golden Age”.
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