Multifamily Rising?

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Building industry consultant and PB columnist John Burns believes multifamily housing is about to break out of the doldrums afflicting that sector for the last decade. "Due to changing demographics, and a multitude of psychographic trends, there will be a world of opportunity for multifamily builders over the next few years," Burns says.

December 01, 2004


Building industry consultant and PB columnist John Burns believes multifamily housing is about to break out of the doldrums afflicting that sector for the last decade. "Due to changing demographics, and a multitude of psychographic trends, there will be a world of opportunity for multifamily builders over the next few years," Burns says.

What's driving the change?

  • The number of people in their early 20s has been declining for a decade, but it's about to surge as the "echo boom" generation arrives. Today, there are 19.7 million Americans aged 21 to 25 with 20.4 million in the group aged 16 to 20. Demand for entry-level apartments will grow over the next five years.
  • There's growing demand for housing that allows occupants flexibility to move if needed. During the last decade, when faced with a decline in the numbers of young adults, apartment builders found an underserved market niche that's still growing. This segment includes older, more affluent adults who don't want the headaches of home ownership. Luxury rental apartments meet the need. Many of these adults have owned homes in the past, but are now "renters by choice."
  • The insurance industry has solved the crisis that forced many builders out of the multifamily game altogether. The new wrap insurance policies solve liability issues brought on by the spate of construction defect litigation that crimped attached condo construction for years.
  • As baby boomers (the oldest of whom turn 58 this year) become empty-nesters, many will seek new housing alternatives. Some will want to retire early and cash out their homes in the suburbs in favor of condos in the city, where culture is walking distance away. Huge markets of this type are emerging in cities like Chicago, San Diego, Las Vegas and along the both Florida coasts.
  • People are living longer, and staying healthy longer. Many people well into retirement years will look to multifamily for their last independent living residences. They are not ready for assisted living, but not living extremely active lifestyles either. Many will access the equity in their detached homes to purchase a modest condominium or rent an apartment. Builders adopting universal design techniques (elements that are user-friendly to people with reduced or impaired physical abilities) will find a growing market among this age group.
  • Many urban markets have record high home prices. Multifamily will be the only affordable option for some households. Condos are expected to make up an increasingly higher percentage of new home sales in the coming years.
  • Some people will rebel at spending long hours stuck in commuter traffic and opt for multifamily closer to work. A related issue here is the lack of regional transportation planning and mass transit options in most cities.

    Strategies



    Apartment builders should continue to identify markets where job growth and population growth are strong, Burns says, and take a look at some emerging markets that have been off the multifamily housing radar screen in recent years.

    "Luxury apartment demand will continue strong," Burns says. "But expect to see an increase in young renter demand in all markets. These renters can't afford the luxury apartments many builders have produced recently, and they don't want the apartments built in the 1980s." Primary research is needed in many markets to understand the needs of this market sector, Burns warns.

    Luxury condos will be most successful in vibrant urban markets, where house prices are high, Burns postulates. "With the right location, the amenities that attract buyers will all be right there, at no cost to the builder. Even a health club may not be needed, if there's one already located nearby."

    To understand this growing market, Burns suggests builders visit Manhattan; Washington, D.C.; Miami, Fla.; or Honolulu, Hawaii.

    The chart shows Burns list of emerging markets with the potential to support multifamily in the future.


    Market
    Multifamily permits over previous 12 months
    Jacksonville, Fla.
    4,161
    Austin, Texas
    3,686
    Sacramento, Calif.
    3,559
    San Antonio, Texas
    3,391
    Nashville, Tenn.
    3,111
    Indianapolis
    3,001
    Daytona Beach, Fla.
    2,976
    Fayetteville, Ark.
    2,953
    St. Louis
    2,649
    Kansas City, Mo.
    2,547


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