The multifamily construction segment is still excelling, according to a recent report, but a nationwide housing shortage persists. The housing shortage can be attributed to various factors, such as population growth, limited construction of new housing units, zoning restrictions, and increasing demand for affordable housing.
How can multifamily housing supply be so steady, when, per YouGov, two-thirds of Americans say they struggle to find affordable housing? Or when”one quarter of homeowners with mortgages and half of renters spend at least 30% of their household income on housing? In short, it looks like supply isn’t meeting actual demand.
Multifamily housing is often considered one of the potential solutions to address the housing shortage. Apartment complexes, townhouses and condominiums are being constructed at a steady pace, according to BuildCentral Inc’s 4th Edition of Multifamily Vision.
Moody Analytics agrees that multifamily demand has been steady and is doing well. An overall housing shortage has helped to support multifamily demand in the near-term. “After a slow leasing season in Q1, which resulted in a .2% vacancy rate jump and 0.9% decline in both asking and effective rent at the national level, average vacancy remained flat at 5% to end the first half of the year. Construction delivery was a bit more sluggish than expected, as inflationary pressure and the elevated cost of financing slowed the overall construction process, which allowed demand to slowly catch up in the second quarter. Net absorption, which measures the net change in the number of occupied multifamily units, ticked up from the seasonal lows as leasing activities grew busier during warmer months. The resilient job market and persistently slow single family housing activity collectively sustained multifamily demand.”
However, certain segments are struggling, based on changing demand, including student, military and senior housing. Similar to declining and dropping enrollments at universities, each military branch is struggling to meet its recruitment goals. However, for senior housing at least, as more baby boomers reach their late senior years, senior housing construction will increase.
Despite the niche market anomalies, here are some reasons why multifamily construction overall will continue to be a strong part of the answer to the housing shortage:
Increasing Housing Density: Multi-family housing allows for higher housing density in urban and suburban areas, making efficient use of available land.
Cost Efficiency: Constructing multi-family buildings can be more cost-effective than building single-family homes on individual plots of land.
Affordable Housing: Multi-family housing projects can provide more affordable options for renters and buyers compared to single-family homes.
Transit-Oriented Development: Building multi-family housing near public transportation hubs can encourage the use of public transportation, reducing urban sprawl and traffic congestion.
Urban Revitalization: Developing multi-family housing in urban areas can contribute to the revitalization of neighborhoods and attract businesses and services.
However, while multi-family housing is a promising approach, it’s important to acknowledge that there isn’t a one-size-fits-all solution to the housing shortage. Addressing the issue will require a comprehensive approach that includes a mix of strategies including easing zoning restrictions, offering incentives for developers, providing financial assistance to low-income households, and supporting initiatives that promote affordable housing.