Rental Set to Rebound

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April 01, 2006

Rental Set to Rebound

"We're expecting to see multifamily starts a little slower in 2006 than in 2005, but there are a couple of conflicting trends going on, Michael Carliner, NAHB economist says. First, there's too much condo supply that in the short term will be difficult to for the market to absorb. In just a few years, the number of properties sold to condo conversion specialists ballooned roughly tenfold to nearly 200,000 in 2005. Second, rental-housing production fell for two years running despite an overall rise in multifamily starts last year.

Carliner sees a "direct connection" between these events because condo developers bid-up land prices too high to justify rental developments.

Last year brought record sales of apartment buildings, but low rental vacancies and low supply could drive rental prices up and bring developers back to reap higher profits. Until supply rebounds, the same dynamics along with low unemployment may stimulate sales of all forms of ownership housing to offset single-family sector concerns.

"There's plenty of room for the rental and the ownership market to both increase," Mark Obrinsky, chief economist for the National Multi Housing Council, says. Over the next 10 to 15 years, he sees echo boomers driving more "steady state" growth than their baby boomer parents who continue to cause broad changes as they move through the "demographic python."

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