2019 Economic and Investor Forecast

At the National Multifamily Housing Council’s 2019 Apartment Strategies Outlook Conference in San Diego, panelists discussed their outlook for the market based on last year's performance.

The multifamily industry is full of transition and those investing in the sector need to adapt. With changing trends in the market surrounding the economy, demographics and the evolution of renters, companies today need to focus on how to strategize in order to get the biggest return on investment. At National Multifamily Housing Council’s 2019 Apartment Strategies Outlook Conference in San Diego on January 29, thousands of attendees came together to discuss the multifamily outlook for 2019. 

Norm Miller, Ernest W. Hahn Chair of Real Estate Finance for the University of San Diego

Norm Miller, Ernest W. Hahn chair of Real Estate Finance for the University of San Diego, shared his thoughts on the long-term demand for multifamily. “The economy will be fine this year. It’s like an iceberg, it moves slowly.” The market is healthy, with lowering ownership rates due to demographics, student debt and tax law changes. 

Additional insights included the continued need for rental housing, the market is still on track to produce the 4.3 million units needed by 2030. Costs to build, especially labor, are up for new housing except lumber, which dropped this past year. Interest rates will head up slowly, but as long as the 10-year bonds stay under 3.5 percent, the industry will show a positive performance. Single family home price reductions have accelerated, with single family months remaining inventory is slowly climbing with some markets showing signs of distress. 

On the opposite end, there are some things that are creating significant obstacles for the market. Among these being rent control, inclusionary zoning, tiny homes and affordable housing via Low Income Tax Credits, which Miller states “works modestly but inefficiently.” 

In 2018, there were 2.6 million jobs, marking a 1.7 percent growth. According to Kim Bentancourt, director of Economics and Multifamily Market Research at Fannie Mae, this influx of jobs and the Millennial generation are driving the demand for multifamily. “There are 83 million Millennials and only 75 million Baby Boomers, so that demographic is shifting and this is still our core market of renters.” Solid market performers going into 2019 include Las Vegas, Orlando and Phoenix. 

Resident retention is also at an all-time high, said Greg Willett, chief economist at Real Page Inc. Nationally, last year there was a range of 52 to 53 percent of residents staying in place when their initial leases expired. “We’re hanging onto residents longer. This continues to trend in an upwards motion for 2019.” 

Executives air on the positive side when it comes to an economic and investor standpoint for the market, although there might be some room for caution when it comes to certain product. Class B is expected to continue to lead the way in terms of pricing power, Class C properties, while full, are losing pricing momentum in some metros due to affordability constraints, while Class A assets should lag other product sectors on rent growth. This year is expected to perform similarly to 2018, with a strong demand for apartments, construction growth, a few markets with a temporary supply onslaught and being underhoused overall.