Supply vs. Demand: Multifamily’s Tug of War

Paula Munger, Caitlin Walter, Norman Miller and Cristina Sullivan

With an estimated 4.6 million new apartments needed by 2030, the multifamily industry is going up against a large demand over the next 10 years. At the National Apartment Association’s Apartmentalize conference, in San Diego, industry experts shed light on some of the most prominent concerns across the market.

NAA’s Director of Industry Research and Analysis Paula Munger moderated a panel featuring Caitlin Walter, Senior Director of Research at the National Multifamily Housing Council; Norman Miller, Ernest Hahn Chair & Professor of Real Estate Finance at the University of San Diego; and Cristina Sullivan, Gable Residential’s Chief Operating Officer. Each addressed the sector’s major challenges, including interest rates, rent control and generational differences. 

Millennials vs. Baby Boomers

Although there may be a large gap in what different generations are looking for in a rental property, both Millennials and Baby Boomers are contributing to multifamily market growth. Millennials are deciding to get married and have kids later in life, resulting to a decline in home ownership. “People are staying in leases longer because these milestones are coming later in life,” said Sullivan.

On the other hand, Baby Boomers are making the transition from homeownership to rentals. It allows them to downsize without having to deal with the larger responsibilities of living in a larger home, as well as having services and amenities more easily accessible to them. “The difference is designing the product to be specific to what your renters need. Housing in the future will continue to be more specific to customer demand,” added Sullivan.

Compared to Millennials, Baby Boomers are more interested in larger living spaces that provide room to entertain guests as well as space for items they’ve collected over the years. Both cohorts care equally about amenities, but each group tends to favor different categories. For instance, Millennials are more concerned with technology and shared spaces that create the opportunity to coexist.  

Interest Rates and Rent Control

Younger households continue to delay marriage

The ongoing interest rate hikes are a continued concern for the real estate industry. Due to the increases, homeownership is now less affordable, which puts more pressure on the demand for rental properties. According to Miller, the increases will be gradual but will result in a 100- to 200-basis point increase by 2020. “It turns into a secret market of keeping units under the same name for years and holding onto those. But with that can come delayed maintenance and in turn the value of the property plummets,” said Miller. 

Another concern is rent control, a factor in major metros like San Francisco and New York City as well as in other cities, the panelists noted. Although it might seem like a win to the renter, rent regulations create problems down the road for the industry. Developers will see a higher return in building condos rather than investing in rent-controlled housing. This reduce property values as much as 20 to 30 percent, which could ultimately lead to foreclosures.