Report Reveals Favorable Multifamily Prospects For the Foreseeable Future

By Dees Stribling, Contributing Editor

Wilmington, Del.—A recent report by TD Economics, an affiliate of TD Bank, confirms the generally positive state (for landlords) of the U.S. multifamily housing market, with prospects good for the foreseeable future. The easy-to-understand situation is that demand continues to outstrip supply, even though between 2009 and ’11 multifamily housing starts rose nationwide 59 percent while single-family starts declined 2 percent as high unemployment, falling home prices and increased foreclosures strengthened rental demand.

But not all areas of the nation will enjoy quite the same robust market. According to the TD Economics report, favorable demographics and years of underinvestment have primed the South Atlantic states for a sustained rebound in multifamily housing construction. Meanwhile, the Northeast is also on a path of recovery, but will lack the South Atlantic’s vigor because of slower population growth and lower rates of household formation.

Supply factors also favor the South Atlantic’s multifamily housing rebound relative to the Northeast, notes TD Economics. Before the Great Recession, the Northeast built relatively more multifamily housing units than the South Atlantic. The South Atlantic’s deeper economic contraction, which led to a larger decline in multifamily investment during the recession, has compounded this supply gap. Overall this means the South Atlantic has had less multifamily capacity to absorb during the recovery.

However, Alistair Bentley, the TD economist who authored the report, says that even within the South Atlantic local factors drive housing markets and not all states will recover with the same gusto. The fast-growing states of Georgia, Florida and the Carolinas have more potential than the more mature markets of Virginia and Maryland, for instance.

North Carolina, for instance, has very favorable apartment market fundamentals. “The outlook for North Carolina multifamily housing development is among the best of the 17 states we surveyed in the Northeast and South Atlantic regions,” Bentley tells MHN. “Overall, we’re projecting multifamily housing starts will grow at an average of 15 percent a year between 2012 and 2016, with the overall starts reaching nearly 16,000 by 2016. Also, we expect the multifamily housing recovery to occur in the more densely populated areas of the state, like Charlotte and Raleigh-Durham.”

Lastly, because of the long lag times involved in constructing multifamily housing, the author cautions that some markets may one day find themselves with too many multifamily units, especially in the slower-growing Northeast. While Bentley “does not expect this to be a problem for several years,” it remains a long-term possibility as those states persist in slow population growth.