According to the latest Fannie Mae projections in July’s Multifamily Market Commentary, new multifamily rental construction remains strong with 10 percent year-over-year growth. Conversely, single-family housing construction continues its downward trend. With inventory tightening in an already constrained market and home prices inflating, it would appear that an affordability crisis is looming. Millennials, in particular, are finding it increasingly difficult to join an exclusive strata of first-time homebuyers, resorting to renting in higher-priced, choice neighborhoods closer to work and play.
Single-family housing has struggled to rebound to pre-recession new-start totals. When coupled with a cross-generational shift toward the rental lifestyle, multifamily developers are driving full-steam ahead to build in line with steady demand. In fact, Moody’s Analytics forecasts that multifamily starts will continue to increase through 2017 (549,000 units) with a slight dip in 2018 (521,000). This far exceeds the 1989-2008 average annual rate of 260,000 new starts.
Fannie Mae and others have painted a picture in stark contrast for the single-family housing market despite substantial economic recovery. There are several factors contributing to prospective homebuyers turning to the rental market:
- Affordability: Lack of affordable housing options in close proximity to employment centers, mass transit and entertainment districts.
- “Toe-dipping” too costly an endeavor for Millennials: What were once considered “starter homes” are easy pickings for older generations with higher net worth to purchase, update and upgrade. This prices out the younger generation already saddled by student debt and stagnant wages.
- Slowing single-family construction: The lack of new builds constricts what is an already tightened supply, creating artificial inflation for homes already on the market.
- Jobs, jobs, jobs: According to the Department of Labor’s most recent numbers, the hiring trend seen earlier this year has slowed considerably. The lack of new opportunities isn’t just affecting those out of work – it points to minimal upward mobility for the gainfully employed and speaks to broader economic skepticism.
- Lifestyle preferences: A study commissioned by Ernst & Young found that globally, 47 percent of Millennials reported an increase in working hours within the last five years. Many Millennials are turning to rental properties for convenience and flexibility. Around-the-clock maintenance and concierge services are more attractive than time-intensive home ownership alternatives.
It’s easy to see how an entire generation is disenfranchised with the traditional “house with a white picket fence,” instead opting for the rental lifestyle that accommodates their specific needs and preferences. That same Ernst & Young study coined Millennials as “Generation Go,” and buying in the more affordable suburbs and exurbs can be a challenge to justify while pursuing an aspirational lifestyle. These generational factors continue to fuel robust rental demand on a national scale and, as such, there are great opportunities for apartment owners and marketers to capitalize on the concurrently favorable market conditions.