Here’s the big picture of the industry’s recent activity and tips on how multifamily marketers can leverage overbuilding, underbuilding and rising rents.
Did the multifamily industry build too much?
People who manage rental buildings might feel anxiety about the large number of units becoming available right now. Among their big questions:
Are new buildings filling up?
Will vacancy rates in older buildings increase?
Will rents decline?
Dr. Skylar Olsen, Zillow Group’s director of economic research and outreach, answered these questions and more at the Multifamily Forum 2018. We’ve rounded up Olsen’s main points below, including tips for addressing tomorrow’s needs for today’s renters.
That boom you heard was the explosion in multifamily rentals
As permits for single-family construction reached historic lows in the last year, permits for multifamily construction reached historic highs. But most of the development is a similar type: large buildings centered in downtown cores. And without a new supply of units, suburban rent growth is outpacing urban growth.
Before the building boom, 1-bedroom units rent growth dominated the industry. According to the Zillow Rent Index for August 2018, 2- and 3-bedroom units are now setting the pace post-boom.
The newest multifamily communities cater to young, urban professionals
That’s been an appropriate trend given current demographics: 20- to 24-year-olds (which include older Gen Zers and younger millennials) make up the nation’s largest five-year cohort.
Today’s urban and suburban renters seek out neighborhoods close to work and school. According to the Zillow Group Consumer Housing Trends Report 2018, more than half (53 percent) of renters with young kids living in the home say access to their preferred schools is extremely or very important. Work or school commute is especially top of mind for urban and suburban renters: 62 percent of urban renters and 58 percent of suburban renters mention their commute as an extremely or very important factor in their home choice versus 47 percent of rural renters.
What’s less important: amenities such as community spaces, rooftop decks and conference centers. Less than 15 percent of renters name them among features they consider extremely or very important.
Today’s renter will impact tomorrow’s inventory
As younger millennials age, they’re more likely to get married and have families. When they enter their early 30s, they may want to buy a single-family home but won’t necessarily be able to do so due to low supply and higher cost. This means they’ll stay in the rental market much longer, but the rental stock that’s been built over the last few years will no longer cater to them.
These households are also doubling up, as the majority of today’s renters (79 percent) live with others: 47 percent with a spouse or partner, 33 percent with children, 17 percent with roommates, 11 percent with parents and 13 percent with other family members or relatives.
There are still many opportunities for growth in the rental industry
Think a decade or so ahead, and brand yourself as a place for families because this is where rent pressure will be. Here are other strategies to consider when anticipating rental housing inventory and rent growth:
Make units where it’s comfortable to share living spaces.
Build alternatives to the standard multifamily units that have come online recently.
Offer amenities that will “age” appropriately along with your residents and prospects; this could include concierge services like dry cleaning, laundry and housekeeping, or programs and spaces that foster entertaining and community-building.
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