Dive Brief:
- After a relatively weak first quarter for the multifamily sector, apartment demand is once again on an upward trajectory, resulting in Q2 offering up the lowest vacancy rates since the Great Recession, according to the National Real Estate Investor.
- The percentage of vacant apartments fell to a post-recession low of 3.8%, down 0.5% from Q1, but MPF researchers said that number will rise as developers make more units available.
- Industry analysts said that much of the renewed demand for apartments is a result of new household formation and that, taking into account those current rates combined with the pace of single-family and multifamily construction, the U.S. will face an overall shortage of 300,000 residential units by the end of 2016.
Dive Insight:
A recent report by the Urban Institute's Housing Finance Policy Center echoed that concern over household growth versus new home construction. The organization said that only six homes were being built for every 10 new households, and that the gap between available housing and demand has caused an increase in home prices and rents that shows no signs of ending until that imbalance is corrected.
Another issue that should give multifamily developers pause is the fact that demand is highest for less expensive apartments because households are having a hard time paying luxury unit rates. According to a Harvard University Joint Center for Housing Studies report, the median rent for new apartments, most likely to be luxury, hit $1,381 in 2015, 70% higher than the national median. Because builders are churning out more luxury apartments, however, high-end apartments have a higher vacancy rate of 6.1% versus 2.7% for the cheaper units.
Rents are still growing, the NREI reported, but the pace has dropped from 5.6% in the third quarter of 2015 to 4.6% in the second quarter of this year. However, according to the Harvard housing report, in 2014, approximately 40 million households paid more than one-third of total income toward rent, and 11.4 million households paid more than 50%. This was reinforced by a recent Apartment List analysis of Census Bureau data, which revealed that, adjusted for inflation, rents have risen 60% since 1960, but incomes have increased only 18%.