May 26, 2018

New-Home Building Dominated by Multifamily

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New-Home Building Dominated by Multifamily

The number of new homes that are being built as rental apartments has reached its highest point in four decades, according to Census data. Rental demand is high, as tight lending standards and muted wage gains continue to sideline many households from buying homes, The Wall Street Journal reports.

Typically, growth in residential construction is driven by single-family homes. Last year, construction began on less than 1 million new residential units, and about one in three of those was a rental in a multifamily building, according to Census data. Single-family homes accounted for about two-thirds of housing starts last year, a drop from about 80 percent in the years leading up the recession, according to the Census data.

Jordan Rappaport, an economist at the Federal Reserve Bank of Kansas City, predicts that by the end of the decade, single-family home construction will reach around its pre-housing boom levels of about 1.3 million new homes a year. Multifamily units are projected to increase to an annual rate of 550,000 new units a year – about double today's rate.

With high demand for apartments, the sector is not having problems absorbing the new units coming to the market, says Ryan Bennett, an analyst at research firm Zelman & Associates. Also, many of the new rental apartments will likely one day become condominiums. Many developers are building with that in mind so it’ll be easier to one day sell subdivided units one-by-one, The Wall Street Journal reports.

"Over time you're going to see these units get converted from rental to condo," says Chris Foley, a principal at Polaris Pacific, a sales and marketing firm specializing in new condominium sales on the West Coast.

Source: “New-Home Building Is Shifting to Apartments,” The Wall Street Journal (March 9, 2014)

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Confidence in Multifamily at All-Time High