For the last several years, virtually all major real estate markets (and most submarkets) have experienced a healthy and sustained boom in multifamily development. History suggests this boom is due to draw to a close soon. Consumer and demographic trends suggest otherwise. Here, we explore some of the trends that may keep the multifamily boom going strong for a while yet.
In most parts of the country, apartment rents are still rising steadily. In the past, steadily declining rents have preceded the scaling back of multifamily development.
Low Vacancy Rates
Cities that have seen the most dramatic increases in multifamily construction rates, like Dallas, still have remarkably low vacancy rates. This suggests there is still considerable demand for new units.
Rock Bottom First-Time Home Sales
According to the National Association of Realtors, the annual share of first-time home buyers in 2015 was at a three-decade low. High home prices and mortgage rates deter would-be buyers, who choose to rent houses or apartments instead.
Another probable contributor to last year’s low first-time home buying rate is the millennial generation’s preference for apartment living. Millennials are aging, accumulating wealth, and voting in droves to live in urban apartments rather than suburban houses. As long as this trend is not bucked, demand for multifamily units should remain high. An increasing number of Baby Boomers are choosing to move from single-family homes to multifamily communities as well.
The current apartment boom cannot be sustained forever, but it may have a lot of life left. If you live in a city with low vacancy rates and rising apartment rents, capitalize on these market trends by developing that apartment community you’ve been thinking about. Just be sure to choose a multifamily contractor with the experience and knowhow needed to make it great!