Why Smart Money’s on Multifamily

For-rent multifamily is long past being the darling property type of the year for any particular year since the recession hit.

For-rent multifamily is long past being the darling property type of the year for any particular year since the recession hit. It’s probably fair to say it’s the darling property type of the entire decade of the 2010s, and if the latest numbers on the industry are anything to go by, that isn’t going to change in 2015. To sum up: rents are still going up; vacancies might be edging up a little, but not too much, as more supply comes on line; and investors are spending money on apartment assets like sailors on shore leave.

Quite a turnaround. In 2004, I attended the National Multi Housing Council’s annual convention in Boca Raton. One of the persistent complaints at the meeting was how federal policy was, in effect, hurting the for-rent side of the residential housing market by (over)promoting homeownership. In fact, around that time (Q2 2004), the percentage of Americans owning a house hit an all-time high, 69.4 percent, up from 64.4 percent at the beginning of 1995. The home-owning high, of course, proved unsustainable for all the sad reasons that the recession unmasked. These days (Q3 2014, according to the Census Bureau), the homeownership rate is 64.3 percent.

This week the NMHC, in its Quarterly Survey of Apartment Market Conditions, reported that the U.S. apartment market’s still doing well. Only the sales volume index (44) dropped below 50–more than 50 means growth and optimism–with market tightness (51), equity financing (55) and debt financing (71) showing continued expansion. Those numbers aren’t quite as high as they’ve been in recent years, but they’re still solid. Demand is still believed to be ahead of supply. Another report by Marcus & Millichap this week generally confirmed these apartment trends.

The recession used to be the driver of positive apartment trends, but these days demographics are in the driver’s seat. The next big population budge (a.k.a. Millennials) are in their prime apartment-dwelling years, but not only that, they’re supposedly more leery of homeownership than their parents or grandparents ever were. That may or may not be true in the long run, but it’s also projected that they aren’t (as a generation) going to have the wherewithal that their elders did. For one thing, their jobs don’t pay as much. For another, a large slice of them are carrying Sisyphean student loan debt. For some years to come, then, the smart money’s on multifamily.