If you have invested in multifamily housing, then it could be time to start renting out those units and stop building more – at least if you want the apartment “boom” to continue after 2015. CoStar Group economists are warning that at present, the apartment-building boom is still going strong, but that present levels of new development could create a glut in the market that could stall demand for rental housing by the end of the year. In 2014, there were 340,000 multifamily starts, compared to an average of 242,000 annually over the past two decades. While vacancies are presently still at their lowest point in more than a decade, “new supply in the multifamily sector will likely increase the U.S. apartment vacancy rate up to 5.5 percent by the end of 2015,” said CoStar.
For renters, this is good news. The looming oversupply will likely help keep rents under control moving into 2016. For investors with money sunk in new development could also still end up in the black since the new renting cohort – adults ages 20 to 34 who are moving out of their parents’ homes in the wake of the recession but are not yet willing or able to buy – want “new product” rather than older developments. However, CoStar economists note that “booming apartment markets like Dallas, Washington D.C. and Houston have seen more than 10,000 units delivered this past year alone, which could force rental owners to offer incentives like free rent to keep their developments occupied.
CoStar also noted that homeownership is likely to fall below 62 percent in 2015, which will also bolster the demand for new, modern apartments with amenities that today’s younger renters consider vital, such as green energy options and community space. “These are not the typical older households looking for senior housing,” said CoStar director of U.S. multifamily research, Luis Meija. CoStar also went so far as to predict that rent growth will dip below two percent in 2016.
Original article published on The Bryan Ellis Investing Letter.