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Industry Leaders Expect Strong Apartment Demand Through 2020

Posted on Feb 9 2020 - 8:11pm by Lance Edwards

Experts predict 1% rise in rental starts through 2020, and 4% through 2021, at International Builders’ Show conference.

 

By Mary Salmonsen  (MultiFamilyExecutive.com Article

While apartment vacancies are low and production has returned to pre-recession levels, more new homes will be needed to meet demand in 2020 and beyond, according to industry experts during a press conference at the National Association of Home Builders’ International Builders’ Show in Las Vegas in January.

“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,” says Danushka Nanayakkara-Skillington, assistant vice president of forecasting and analysis at NAHB. “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.”

According to the conference panelists, multifamily housing starts leveled off in 2018 due to material costs, regulatory costs, and the need to pay higher wages to attract and keep workers. This led to a rise in rent, which resulted in fewer affordable apartments and a rise in luxury communities.

However, ongoing demand means developers are continuing to build, predominantly in urban areas. In 2017 and 2018, most new rentals were in communities with more than 50 units, and in 2019 multifamily starts stood at 116% of the national average.

In spite of labor shortages and rising material prices, rental production is expected to continue at this level, with a 1% increase expected in 2020 and a 4% increase in 2021. This is due in part to demand from younger renters and retirees looking for affordable, low-maintenance living in walkable areas.

“Apartment developers and designers are incorporating features into their communities like coffee bars, rooftop cafes and bars, bowling, indoor basketball, and more,” says Sanford Steinberg, founding principal of the Steinberg Dicky Collaborative in Houston and Austin, Texas. “The goal is to attract and retain the renters and ‘renters by choice,’ who prefer a stimulating lifestyle in a great apartment community that offers all the amenities they are accustomed to in the home they lived in or strive to obtain.”

Millennial single-family homeownership is on the rise, but high home prices are pushing millennials to continue to rent. Rents are expected to continue to rise in 2020, but may do so more slowly as supply increases.