As we continue to ride the wave of the longest expansion in U.S. history, what are the key indicators of continued growth in the multifamily sector? According to Real Capital Analytics, developers are expected to deliver an estimated 398,000 units in 2020, a rate of 8,000 units lower than last year’s delivery of 406,000 units.
The millennial factor will continue to play a significant role in the growth of the multifamily market, as student debt continues to be a growing concern. Millennials struggling to pay down student debt with a high debt-to-income ratio find renting the only viable option. In terms of the aging millennial, many are now seeking suburban rental options, focused on being near quality schools and public transportation hubs. These multifamily developments are often garden-style properties that are less expensive options compared to Class A urban properties. The combination of student debt, the current low inventory housing market and stringent loan guidelines will continue to advance the growth in the multifamily sector.
The top cities for overall real estate prospects are primarily comprised of midsized markets between 1.9 million to 2.6 million in population. Austin, Raleigh/Durham, Nashville, Charlotte, and Orlando specifically show the highest projected population growth according to the ULI/PWC Emerging Trends in Real Estate 2020 report. This is primarily based on strong job growth, as well as the benefit of large companies moving out of primary markets and into secondary markets, providing lower cost of living options for their workforce.
Investors will continue to reap strong returns on long-term investments in multifamily projects. The sector will also serve as a safe haven of sorts should a slowdown take place. The asset class has always performed well, even in a slowing economy. While the retail sector may suffer, housing is a constant need and has proven to be a safe bet amongst investors. In tandem with the security of the asset class, interest rates will also be a leading driver in the continued growth of multifamily projects.
Affordable housing will be a primary focus in 2020, as the Federal Housing Finance Agency (FHFA) has revised their multifamily loan caps to $100 billion for each GSE (government sponsored enterprise), a combined total of $200 billion to support the multifamily market. The FHFA is directing that at least 37.5% of the GSE’s multifamily business be “mission-driven affordable housing.” The end goal is to transform the misconceptions on investing in affordable housing projects and the potential for long-term returns while providing a quality product.
All signs lead to continued growth in the multifamily sector. Investors and developers continue to keep their finger on the pulse of potential disruptors in the market - the ever-growing need for affordable housing; rent control laws recently enacted in New York, California, Illinois, Oregon and Ohio along with many macro-trends; the current trade wars; impeachment process and the 2020 election.
In the end, 2020 will continue to be a robust market for the development of multifamily housing with a focus on secondary markets and affordable housing options. Continue to ride the wave.
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