Experts See Multifamily Rental Housing Starts Falling In 2009
By Caitlin Jones & A. J. Johnson
3 min read
Multifamily rental housing starts in the U.S. are likely to fall throughout 2009 but then start to rebound as job losses slow and renter demand picks up, according to industry experts speaking at a recent conference in Washington, DC.
At the 2008 Fall Construction Forecast Conference, held on 10/22/08 by the National Association of Home Builders, NAHB Chief Economist David Seiders and Dallas, TX housing industry advisor Ron Witten, founder of Witten Advisors, LLC, shared a bleak assessment and near-term outlook – as did others – for the single-family housing sector, but a better albeit challenging near-term forecast for the apartment sector.
“The fundamentals are…quite good still in the multifamily rental sector,” said Witten, who noted that this is the only housing sector – as opposed to single-family homes and multifamily condos – “that’s not over-supplied, to any meaningful degree at least.”
Witten said the occupancy rate nationally for multifamily rental properties is around 95%, about 50 basis points below a year ago. He said the combination of this slightly higher vacancy rate and a weaker job market has decreased the size of effective rent increases by apartment owners in the past 12 months, to a lower but still respectable 2.0%-2.5%.
Seiders said overall multifamily housing starts (buildings with 5 or more units) rose in the 2nd quarter of 2008, likely due to an aberration from a code change in New York City. But he predicted that overall multifamily (condos plus rentals) and multifamily rental housing starts will decline significantly for about another year, perhaps a little longer, before stabilizing and starting to increase. Witten similarly forecast a decline in multifamily rental starts, falling best case by 10%-15%, and worst-case by nearly 40%. At the latter level, he said annual multifamily rental starts rate would drop to roughly 125,000 units – rivaling the level in the early 1990s during the nation’s last credit crunch. “With the difficulty in financing, and the tremendous disconnect between deals that are trying to be financed, and the terms on which lenders want to finance deals, I think we’re going to be in for at least a couple year period of deterioration in multifamily rental starts,” said Witten. “But, like everything else, the picture varies by city.”
Seiders and Witten said multifamily rental starts will decline because of accelerating job losses and reduced rental demand, and due to the glut of vacant housing units nationwide that speakers argued must be cleared before the nation’s economy and housing market can recover. Witten said the current excess supply of housing units in the U.S. (i.e. the number of units above the normal vacant supply) is about 1.2 million units, of which about 150,000 units are for-sale condominiums, 100,000 are apartments, and the rest – nearly 1 million – are single-family homes.
Seiders predicted the national unemployment rate will rise to 7.4% by late 2009. The latest figure, for October, was 6.5%.
Witten said the current condition and future outlook for the apartment sector varies widely among local markets, with some markets “struggling” and others “in great shape.” Examples of the latter, he noted, are Dallas and Houston, each with strong job growth. At the other extreme is Southern California, including markets such as Riverside and Orange Counties.
Witten said long-term mortgage capital is still available for new apartment projects. But he noted that developers are having a tougher time finding equity, adding that this is now particularly difficult for new low-income housing tax credit projects.
