By CHUCK GREEN
Home sweet… multifamily home construction?
If, well, the spare bedroom fits.
And that it seems to do in light of a new report from Construction Coverage showing a spike in construction of multifamily homes in the U.S.
With a jump in multifamily housing projects, home building in the U.S. catapulted to a nine-month high last December, according to Reuters. There was a 2.4% hike to a rate of 737,000 units among multifamily homes under construction.
“As long as supply chains remain stressed, builders will struggle to complete projects, slowing sales and likely limiting growth in the supply of new homes,” said Ben Ayers, Senior Economist at Nationwide in Columbus, Ohio.
Earlier in the year, addressing the International Builders’ Show in Orlando, economists shucked aside perpetual challenges, indicating they foresaw an upbeat year in the apartment sector, according to reintelligent.com.
“Last year was red hot for multifamily, and we see that trend continuing,” said Dean Schwanke, Vice President, Multifamily Housing, National Association of Home Builders.
Fanned by low vacancies and ballooning rents, there will be a 6.3% uptick in multifamily starts from 2021 to around 496,000 units this year, the NAHB anticipates. In 2022, bucked up by heartier multifamily growth, overall, housing production is expected to spike 2.5% to an annual pace of 1.63 million.
After expanding by $17 billion last year, multifamily home construction is expected to jump by over $7 billion in the U.S. this year, according to statista.com. This segment of the construction industry boasted a market size of $93.9 billion in 2020.
That same year, in light of a transaction value nearing $140 billion, the multifamily real estate market assumed almost half of the commercial property market pie, according to statista.com.
“The increase in construction of multi-family homes can be attributed to their lower cost to purchase, compared to a single-family home,” Jennifer Lee, Senior Economist and Managing Director, Economic Research at BMO Capital Markets told The Mortgage Note.
However, “Single-family homes still, by far, outnumber multi-unit homes. I think it all comes down to cost and affordability.”
Even with the boost in multifamily home construction, each year, on average, 325,000 new apartment homes must be added, according to multifamilyinsiders.com. And that hasn’t happened since 1989.
In 2020, only 289,000 were built, the site noted.
With the number of renters climbing to an all-time level, the clammer for apartments is at a fever pitch, with almost 39 million in the U.S. laying down the welcome mat at an apartment, according to the CBRE.
By 2030, to keep pace with demand in the U.S., there will be a need for around 4.6 million new apartments, according to a 2017 joint study by Hoyt Advisory Services and commissioned by the National Multifamily Housing Council and the National Apartment Association. The study was updated last year.
“Considering that we have a housing deficit, we desperately need housing to accommodate the strong demand for housing coming from demographic changes. For multifamily, the increase in demand is due to low vacancy rates and rising rents,” Danushka Nanayakkara-Skillington, NAHB Assistant Vice President for Forecasting and Analysis explained to The Mortgage Note.
For years, housing supply – or the lack of a sufficient inventory – has been a thorn in the side of affordability in the United States, according to Construction Coverage. While it’s estimated by Freddie Mac that the country has a 3.8 million unit housing shortage, the pandemic hasn’t exactly helped matters, with inventory sagging to unprecedented lows in 2020.
All that said, fueled by factors including a shoring of urban amenities restriction, an uptick in vaccination rates and a boost in public transit use, multifamily properties located downtown are refilling, with rates of occupancy approaching levels preceding COVID, according to the CBRE.
So, what’s unfolding around the country in the multifamily space?
According to Construction Coverage, Louisville paced the pack of large cities with the widest jump in constructing multifamily homes, followed by Philadelphia, Dallas, Aurora, and Anaheim.
In states in the Northeast, which are densely populated, multifamily family housing is all that and more. Last year, multifamily units made up more than 72% of all new units authorized in New York. Meantime, they represented more than 60% in nearby Massachusetts, New Jersey, and Pennsylvania
But in areas where they’d be more surprising, such as New Mexico and Kentucky, there also have been surges in multifamily construction.
Since various forms of housing obviously float the boat of individuals differently, what is it about multifamily housing that, for some, helps make the industry go round? Well, it struts a cocktail of features, such as the fact it ramps up the density and availability of housing units in urban and suburban areas, according to Construction Coverage.
On top of that, compared to their single family counterparts, in terms of development, multifamily housing’s boasts greater efficiency and is more cost-effective.
And that’s not all. Larger places can offer amenities including offices, restaurants, and bars, so denser housing, which is closer to work and everything else that makes the world go round is rediscovering its mojo.
There’s also this little tantalizer for the number crunchers in the crowd: It’s not only the stock market that can yield significant dividends; yeah, sure, the current state of your portfolio notwithstanding, this year — and into the future — multifamily housing represents a solid investment, according to DBSG.com.
Maintaining a tight grip is the return on multifamily investments, with lower interest rates and a yield, in some markets, trending up as high as 10%.
On top of that, the CBRE anticipates a resurgence in the flow of foreign capital targeting multifamily assets.
All that said, multifamily projects aren’t clicking without a little help. For example, construction accounting software is one of two new pieces of construction technology that will abet those working on large multifamily projects, according to Construction Coverage.
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