RubinBrown Apartment Stats 2015

Executive Summary

Industry Update The multifamily rental housing industry posted a strong economic position in 2014 and exceeded many industry and economists’ expectations. The construction in 2014 of multifamily units reached levels that had not been seen since the 1980’s. It should be noted that despite this rise in multifamily units, it is not going to make a significant impact on vacancy rates due to the lagging market conditions in the single-family market and the high demand in the multifamily rental market. A strong movement from single-family housing to multifamily housing is being led by demographics, continued growth and uncertainty in the labor market and an aging population. The Federal Reserve Bank of Kansas City published an article that states, “The longer term outlook is especially positive for multifamily construction, reflecting the aging of the baby boomers and an associated shift in demand from single-family to multifamily housing. By the end of the decade, multifamily construction is likely to peak at a level nearly two-thirds higher than its highest annual level during the 1990’s and 2000’s.” Although 2014 saw a significant increase in new multifamily rental units, rents continued to grow and vacancy rates continued to remain low. Overall the supply and demand of multifamily units has remained in check and in most areas there is a continued need for the supply of units to increase in order to keep up with the demand. We continued to see an increase in the construction of multifamily units throughout 2015 and early into 2016. According to a multifamily outlook published by Freddie Mac, completions are expected to rise above the historical average of 270,000 units, but are not expected to exceed the 440,000 units needed annually to meet the growing housing demand. With the demand still exceeding the supply, many landlords were able to increase rents. According to the Real Estate Investment Society (REIS), gross revenue per unit is up 20% over the last five years. REIS points out that the last time this level of growth was seen was for the five years period ending 2002, when the revenue growth was 23%. Vacancy levels have declined compared to 2013 by 10 basis points, reaching a 13-year low of 4.2%. According to the Joint Center for Housing Studies (JCHS) of Harvard University, the share of U.S. households that rent rose to a 20-year high of 35.5% in 2014, marking the tenth consecutive year of renter household growth. Renter household growth has averaged 770,000 annually since 2004.

According to Freddie Mac, one of the key factors in multifamily renting is age. The largest group of renter’s is in the age group of 25-34, known as Millennials. This group should reach a peak this year or next and continue to rise until 2023, keeping the demand for multifamily units high. It is also expected that as the economy continues to improve the demand for housing will continue to increase as Millennials begin forming their own households. Some of the reasons why the largest group of renters are Millennials include tight underwriting standards for mortgages and lower credit scores due to the slow employment market and lower entry salaries. The study from the JCHS goes on to point out the soaring demand in the rental market is often attributed to Millennials age group preference to rent. Households in the 45-64 age group have accounted for about twice the share of renter growth in 2004-2014 than households in the 35 age group. In 2014, the 55 and over age group households made up only 25% of renters, but contributed 42% of renter household growth over the preceding decade. Market Trends The rental housing market remained strong in 2015, as demand for rental housing is likely to continue to increase. According to JCHS projections, individuals that are currently under the age of 30 will form over 20 million new households between 2015 and 2025, and most of them will be renters. A large increase in renters over 65 is also expected as more individuals in the baby boom generation downsize into the rental market. With the increased demand and revenue in the multifamily sector, property prices grew in 2014. Property values increased in 2014 about 15% as reported by Real Capital Analytics. It is forecasted that this property appreciation will continue as investor demand for multifamily properties remains robust. The multifamily capitalization rates ended 2014 at 6%, a decrease of 16 basis points from 2013. The number of renters living in housing that they can’t afford continues to grow each year. Federal assistance has not been able to keep up with the need of residents and has limited some new construction and upkeep of currently subsidized units. Many neighborhoods still have not experienced a housing recovery. The rising cost of housing is not isolated to just the coasts anymore. Affordable housing shortages are growing in every state. Enterprise Community Partners, Inc. has stated that more than one in four renter families across

RubinBrown Apartment Stats 2015 | 1