Apartment Sector Remains Strong, Says NMHC Survey

Apartment Sector Remains Strong, Says NMHC Survey
Published: March 11, 2008

By Anuradha Kher, Online News Editor

Washington, D.C.--Conditions in the apartment sector remain strong, according to National Multi Housing Council’s (NMHC) latest Market Trends survey.

“Apartment owners exercised great restraint during the housing boom,” notes NMHC chief economist Mark Obrinsky. “As a result, they have escaped the oversupply problems plaguing the single-family sector.”

According to NMHC, the number of renters last year in professionally managed apartments increased by the largest amount since 2000. “In fact, the increase was as large as that for the previous five years combined,” says Obrinsky. Prior to that, between 2004 and 2006, 1.2 million households joined the ranks of renters, more than making up for the loss in renter households sustained from 2002 to 2004

“While the so-called ‘shadow’ rental market (unsold houses and condos that have left the for-sale market to enter the rental market) may attract some apartment renters, thus far, the lowest homeownership rate in almost seven years seems to have increased demand for apartment residences, especially professionally managed apartments,” says Obrinsky.

The number of renters nationwide is projected to increase by almost four million households over the next 10 years, with half of those households likely to rent apartments, the survey says. To meet that demand, the nation needs to produce at least 250,000 new apartment residences each year. Yet apartment completions have averaged just two-thirds of that in recent years. Last year, both starts and completions of all multifamily units (both condos and rental apartments) fell to their lowest levels since 1996 and 1997, respectively.

Despite the positive numbers, builder confidence in the rental apartment market sagged in the fourth quarter of 2007, according to the National Association of Home Builders’ Multifamily Rental Market Index (MRMI). As the number of calls from prospective renters slowed, incentives and concessions were being used to shore up demand, according to survey respondents

The MRMI, on which MHN reported last week, is derived from a quarterly survey of multifamily builders and developers, in which their responses are rated on a scale of 0 to 100. It is not an economic analysis, but a survey of opinions, which could explain the difference in the outlook of the two studies, an industry observer thinks.

“By all measures, new apartment supply clearly remains in check,” says NMHC’s Obrinsky. “Thanks to those solid fundamentals, rents continue to show modest increases even as single-family house prices continue to fall.”