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NAHB: Apartment Demand Will Fuel Multifamily in 2020

Apartment growth is back to pre-recession levels but demand still outweighs supply. NAHB projects rental rates to keep going up as condo builds remain fairly flat.

LAS VEGAS – Apartment production has returned to pre-recession levels, but vacancies are low – and the U.S. needs more apartments, according to experts who participated in a press conference recently at the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas.

“Research shows that 22% of young adults – ages 25 to 34 – still live with their parents, a trend that will continue to create a drag on household formation in 2020-2025,” said NAHB economist Danushka Nanayakkara-Skillington, associate vice president, forecasting and analysis. “That group’s challenges in looking for an apartment can be attributed to student debt, rising rents or even competition with seniors who opt to downsize to a smaller home or apartment.”

In 2018, multifamily housing starts leveled off – a response to higher building materials costs, the need to pay higher wages to attract and keep skilled workers and regulatory costs that make up a third of total multifamily building costs, according to NAHB.

Rents rose along with costs, resulting in more luxury communities and fewer affordable apartments.

Developers have responded to demand by building more apartments, predominately in urban areas. In 2017 and 2018, most rentals were communities with more than 50 units. In 2019, multifamily starts were at 116% of the national average.

While condominiums might seem to be a good response to demand, however, developers haven’t significantly ramped up condo production.

In spite of significant problems – building materials prices, a shortage of skilled labor and local and federal regulatory constraints – rental production should continue at near-present levels this year, NAHB says. It predicts a 1% increase in 2020 production and a 4% increase in 2021. The expected increase is due, in part, to an uptick in young people and retirees looking to apartment living as a more affordable, low-maintenance option – preferably in walkable neighborhoods with opportunities for entertainment, services and social activities.

“Apartment developers and designers are incorporating features into their communities like coffee bars, rooftop cafes and bars, bowling, indoor basketball and more,” said Sanford Steinberg, founding principal of the Steinberg Dicky Collaborative. “The goal is to attract and retain the renters and ‘renters-by-choice’ who prefer a stimulating lifestyle in a great apartment community (with) the amenities they are accustomed to (or strived) to obtain.”

While increasing numbers of millennials are purchasing single-family homes, pushing the homeownership rate back up to 64.8%, home prices continue to hinder some millennials who then opt to rent.

Though rental rates are growing more slowly thanks to supply increases, rents are still expected to continue rising in 2020, NAHB says.

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