As economic conditions continue to rebound from the pandemic-induced slump, now is the perfect time to evaluate the multi-family market and anticipate the upcoming trends that are likely to materialize in the near future.
Recent Changes to The Multi-Family Market
While the multi-family sector has proven largely resilient despite the turbulent economy, there are still a few issues that real estate professionals need to keep tabs on to ensure they are making sound investment decisions.
Large-Scale Mandatory Eviction Moratorium
The main issue over the past year impacting the multi-family market was the large-scale mandatory eviction moratorium, which effectively precluded landlords and property owners across the nation from collecting past-due rents.
Still, the controversial legislation assisted tenants who were struggling to meet their rental payments as a result of unemployment precipitated by lockdown protocol. Without the forced eviction stoppages, the real estate market would have experienced unprecedented vacancy rates, falling rents and reduced overall return on investment for owners.
In spite of this complicating factor, the overall market dynamics are still robust with multifamily demand skyrocketing and median rents rising in virtually every major metropolitan area in the country. In addition to the eviction ban, COVID-19 effected the multi-family market in a number of other significant aspects as well.
A Rise in Rental Prices
One of the most notable resultant trends was the dramatic rise in rents.
Statistics compiled by the National Apartment Association indicate that rents have risen by an astonishing 39% over the entire United States in the past ten years—which is a testament to the ongoing strength of the market and its reliability to produce consistent returns in spite of external factors like the pandemic.
Hiking Construction Costs
The Covid-19 pandemic has caused numerous disruptions to the multifamily and rental markets, including significant shifts in construction costs.Â
The pandemic has resulted in a rise in construction costs due to supply chain issues, increased labor costs, and other factors related to the disruption of normal business operations. This has made it more expensive to build new multi-family housing units.
Changing Tenant Expectations
Another key development linked to the pandemic pertains to tenant expectations.
With the advent of teleworking employment options—a trend greatly expedited by COVID-19—individuals are spending significantly more time in their residences and subsequently are demanding housing options that offer more square footage and premium amenities.
This market shift has prompted many former urban renters to move away from the city to suburban areas where they can get more bang for their buck in terms of space and top-tier amenities. This mass exodus has led to a rise in multifamily units development projects breaking ground in suburban areas that in the past were largely dominated by single-family residences.
The rising number of people seeking rental properties could usher in a new era of gentrification, neighborhood revitalization initiatives and re-zoning areas to accommodate multifamily housing complexes.
With home prices for single-family homes skyrocketing thanks to massive demand and decimated inventory levels, more and more would-be property owners are being priced out of buying a home. Instead, these individuals are opting to rent for the time being due to financial concerns—making it the perfect time to make a multifamily investment.
Factors That Impact the Multifamily Market
There are a number of factors that can affect the multifamily property market on an annual basis. MultiFamily investors should pay close attention to these points to ensure their investments remain profitable.
Economic Conditions
Economic conditions, such as changes in local employment rates and wages, can have a major effect on demand for rental units. When economic times are good and people have more spending power, they may be more likely to rent larger or higher-end properties than when the economy is not doing so well.
We are still seeing the impact of Covid-19 from an economic point of view, but thing are largely beginning to level out.
Financing Options Availability
The availability of financing options also has an impact on the multifamily market. When banks are willing to offer low-interest rates and favorable terms on loans, this makes it easier for buyers to purchase multifamily units, increasing investor demand and driving up property values.
Changes in Public Policy
Changes in public policy can also influence the multifamily market. For example, tax credits offered by governments to encourage development of affordable housing can lead to increased construction activity in certain areas, while zoning regulations can restrict building in certain areas or require developers to provide specific amenities or services.
Changes in Consumer Preferences
Finally, changes in consumer preferences and trends can have an impact as well. Today’s renters increasingly value access to amenities like fitness centers or pools over traditional features like square footage, driving up demand for properties with these kinds of features and pushing prices higher accordingly.
So, Is the Multi-Family Market Still a Good Investment?
The short answer is yes.
The multi-family housing market was a sound investment option even pre-pandemic. A large segment of the millennial population have preferred renting as opposed to buying due to lifestyle and financial factors.
Additionally, the ageing Baby Boomer generation will increasingly reach retirement age and downsize—oftentimes to senior multi-family complexes—which will only serve to further increase the future demand.
That explains why major industry players Freddie Mac and Fannie Mae both anticipate the multifamily market to continue to expand for the foreseeable future.
Real estate investors seeking to diversify their portfolios with multifamily assets should do their homework before selecting a property. Concentrating on areas where there is a large contingent of young professionals who tend to rent is a great way to kick off your search.
Still, considering the fact that the number of U.S. tenants collectively has risen by more than 30% since 2000 and the median multifamily unit occupancy rate is over 96% (and still rising), there is a good chance that a properly executed investment in any major market has the potential for impressive returns.
The Time is Now
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FAQs
What is multifamily housing?
Multifamily housing is a type of residential real estate that consists of multiple units, usually apartments, grouped together under one roof. Typically, these units are rented to tenants who pay rent and a security deposit in exchange for the right to use the property.
Multifamily housing can range from duplexes and townhomes to large apartment complexes with hundreds of units. These properties are often found in dense urban areas and are popular with renters who prefer the convenience of living close to work, transportation, shopping, and entertainment.
How big is the US multifamily market?
The US multifamily market is one of the largest and most lucrative real estate markets in the world. According to data from the National Multifamily Housing Council, there are more than 44 million rental units in the United States, representing a total market value of over $2.5 trillion. These rental units make up nearly a third of all residential real estate in the US, making it one of the largest and most profitable sectors of the real estate market.
Why invest in multifamily assets?
Investing in multifamily assets can be a great way to generate passive income and create long-term wealth. The current post-Covid economic conditions have made investing in multifamily properties even more attractive, as there are now more opportunities for investors to capitalize on.
Multifamily properties offer investors numerous advantages due to their steady income streams, stable demand, and low vacancy rates.
