Multi-unit Housing Construction Shooting Up, But …
Home builders are really happy right now, but it’s mostly just those working on multi-unit housing. Apartment starts are up 416 percent from the 2010 low. Builders are anticipating even more growth in rental demand.
One reason for this growth in apartment construction is that new household formation in the next few years is anticipated to be coming from lower wage-earners. With home prices rising, these households will not only be looking for rentals, they’ll want lower end rents. Apartments are definitely much less expensive to build than single family homes, so rents are always much lower.
While some media reports are praising rising home prices, this is mostly due to a tight inventory and continued investor demand. Even though interest rates remain low, the demand for homes is just lackluster. Builders see fewer available jobs and lower wages, so the plan is to build more apartments that this new group of renters can afford. It’s possible that there can be a lag and ultimately an over-building of apartments, but there’s definitely demand for many more in the supply line.
BUT …
Single family homes now comprise 35% of all rentals and 11% of all households. Over the past seven years, single family rental homes grew by 1.7% per year, reasons give include:
• Low affordability: People just can’t afford to buy a home right now due to high debt levels, poor credit ratings, and rising home prices.
• Confidence lacking: The poor job market creates a crisis of confidence, and people don’t make major purchases when they’re worried about their employment.
• Lingering foreclosures: Foreclosures are still a major activity in judicial foreclosure states due to the long time frames required to carry them to conclusion.
Many consumers, and investors as well, carry the misconception that institutional investors are doing much of the rental property buying. The truth is that they comprise only around 1% of the industry. The single family rental home market is dominated by small investors with direct purchase and landlord experience. Small regional investors are still the driving force in purchases for single family rental service.
Would the next logical phase be one of consolidation? Many industries have started with local small operators who were later purchased by major players consolidating the markets. There could be a major institution knocking on your door one day wanting to buy your portfolio. They may even want your services as well. It’s not a recommendation that you sell, just recognizing the value of what you have.
Home builders are really happy right now, but it’s mostly just those working on multi-unit housing. Apartment starts are up 416 percent from the 2010 low. Builders are anticipating even more growth in rental demand.
One reason for this growth in apartment construction is that new household formation in the next few years is anticipated to be coming from lower wage-earners. With home prices rising, these households will not only be looking for rentals, they’ll want lower end rents. Apartments are definitely much less expensive to build than single family homes, so rents are always much lower.
While some media reports are praising rising home prices, this is mostly due to a tight inventory and continued investor demand. Even though interest rates remain low, the demand for homes is just lackluster. Builders see fewer available jobs and lower wages, so the plan is to build more apartments that this new group of renters can afford. It’s possible that there can be a lag and ultimately an over-building of apartments, but there’s definitely demand for many more in the supply line.
BUT …
Single family homes now comprise 35% of all rentals and 11% of all households. Over the past seven years, single family rental homes grew by 1.7% per year, reasons give include:
• Low affordability: People just can’t afford to buy a home right now due to high debt levels, poor credit ratings, and rising home prices.
• Confidence lacking: The poor job market creates a crisis of confidence, and people don’t make major purchases when they’re worried about their employment.
• Lingering foreclosures: Foreclosures are still a major activity in judicial foreclosure states due to the long time frames required to carry them to conclusion.
Many consumers, and investors as well, carry the misconception that institutional investors are doing much of the rental property buying. The truth is that they comprise only around 1% of the industry. The single family rental home market is dominated by small investors with direct purchase and landlord experience. Small regional investors are still the driving force in purchases for single family rental service.
Would the next logical phase be one of consolidation? Many industries have started with local small operators who were later purchased by major players consolidating the markets. There could be a major institution knocking on your door one day wanting to buy your portfolio. They may even want your services as well. It’s not a recommendation that you sell, just recognizing the value of what you have.