A new study commissioned by the National Multifamily Housing Council has concluded the need for the U.S. to build some 4.6 million new apartments between now and 2030, a dramatic increase over the rate of apartment construction in the last five years.
The study, “U.S. Apartment Demand—A Forward Look,” was prepared by Hoyt Advisory Services, Dinn Focused Marketing, Inc., and Whitegate Real Estate Advisors, LLC, concluded that the number of apartment units would have to jump to an average of 328,000 new units each year, significantly higher than the average of 225,000 completions a year.
The housing bubble fallout that began in 2007 and ended in 2010 represents a shift in the numbers of former homeowners, many of whom continue to rent their housing.
The result has been a decline in housing affordability, especially in markets on the East and West coasts, one reason being that affordability typically is achieved only with greater density and smaller-sized units, while land-use policies and the political approval processes are typically adding greater regulation and restrictions to those same markets.
A shift in demographics, along with student debts and tighter lending criteria, are all signs of a substantial demand in rental markets. Adding to the dynamic scene in the study is the potential for policies that would impact immigration rates.
The fact is, any significant decline in immigration rates is likely to hurt the overall economy.
Metro markets that have strong economies also have significant population growth that results from people moving into the area, either from abroad or from other areas in the U.S.
Among the areas most likely to see higher demand for multifamily housing are the Southern states, driven by economic growth, low costs and diversified demographic growth. Texas and Florida are markets that are ranked 5 of the top 6 places in the study, with Phoenix, Atlanta, Raleigh and Las Vegas ranking in the top 10.
As some markets embrace growth, others will experience restrictions based on geography or policy, with the results usually coming in the form of higher rental costs and lower affordability. Conversely, markets where there are rates that are seen as high for both rental and for-sale housing risk losing population bases to lower cost areas.
States that have achieved healthy balance sheets and an educated workforce will continue to attract both individuals and firms from stressed markets that have increasingly unaffordable housing dynamics.
A couple of great “known unknowns” could come into play, one being how policy changes may impact the applicability of mortgage tax deductions and thus affecting the “own versus rent” decision for people who may drive future demand for multifamily properties.
Another could be how policy changes on immigration rates will play out. It is increasingly possible to see a scenario where immigration begins to outpace natural growth (births minus deaths) by 2023, accelerating in impact to a point where population growth could be less than half that of the last decade.