Over the last year, the multi-family housing market has been lukewarm, to say the least. In fact, ITR Economics – which produces quarterly economic reports for Coin Laundry Association members – recently noted that the single-family market currently outnumbers the multi-family market by more than two to one, on a unit basis.
The simplest explanation, according to ITR Economist Connor Lokar, is that the multi-family space became overbuilt in recent years. During the Great Recession, millions of Americans were foreclosed on, displaced from traditional single-family homes, and the percentage of households owning homes dropped from a peak north of 69 percent before the recession to less than 64 percent today.
“In response, multi-family construction surged to fill the need,” Lokar said. “Mangled credit scores and tightened lending standards have prevented many who wanted to buy homes again from re-entering the market, and others are choosing not to, after the thought of residential real estate as an indefinitely appreciating asset was spoiled.”
Multi-unit housing starts averaged 30.5 percent annual growth from 2011-2015, before throttling down during the last 18 months. Contrast this to the 2001-2007 period, with the multi-family market actually averaging a 1.2 percent annual decline, while the single-family market dominated overall residential construction growth leading up to the Great Recession.
Today, the U.S. apartment vacancy rate is inching upward. Additionally, U.S. apartment vacant stock is accelerating, and gross revenue per unit growth is slowing – all indicating a building trend that has surpassed market demand. By contrast, single-unit housing starts are up 7.2 percent year over year and accelerating.
“This is buoying the housing market overall and preventing any overt damage to the health of the U.S. economy,” Lokar pointed out. “However, if multi-family housing is one of your primary markets, you are less comforted, but now you know what is coming.”
ITR expects the multi-family housing market to remain slow through year-end before rebounding in 2018.
