The year 2020 saw a milestone in real estate. It was when over 43 million households were renting their homes. Multifamily housing now makes up about 15% of the total housing stock in the country. It is interesting to point out that renting has been on a steady increase since 1975.
Residential vacancy rates had hit an all-time high in 2010 following the economic turmoil of the great recession. Since that period, the vacancy rate has declined by almost 40%, and it now stands at about 6.4%. Despite a relatively low vacancy rate compared to decades ago, there are some discrepancies in vacancy rates in downtown city centers and the suburbs. Downtown city vacancy rates rose to 9%, while suburban vacancy rates declined and now stand around 6%.
The covid-19 pandemic is partially responsible for the increase in city vacancy rates and the decline in suburban vacancy rates. Many people were looking to move out of the more heavily populated urban centers during the pandemic. The suburbs provided bigger living units and less population density.
The millennial generation is driving the demand for multifamily housing. About 70% of millennials state that they cannot afford to purchase a home. Additionally, the millennial generation has significantly less wealth at their stage of life than previous American generations have had. Less wealth, high home prices, and the need to live somewhere mean that millennials increasingly shift towards multifamily housing.
Despite the covid-19 pandemic and global economic turmoil, national data shows that rent for multifamily properties rose by almost 2% in 2021. Some optimistic news in the multifamily sector is that rent collections appeared to have never dropped below 93%, even during the height of economic shutdowns in 2020. Government stimulus and intervention helped prop up the multifamily sector, and eviction moratoriums protected the renters during the turmoil of the Covid-19 shutdowns.
The outlook for multifamily housing from an investment perspective continues to be positive. Rents are expected to increase by close to 6% over last year. Rising house prices and demographic trends are also likely to be favorable to the multifamily housing industry. As the economy rebounds, new young professionals are also expected to move out of their parent’s homes and begin living independently, most likely in a multifamily housing unit.
The top 10 cities for multifamily investing continue to be in the Sun Belt. States like North Carolina, Arizona, Florida, and Texas have hot markets for multifamily dwellings. However, opportunities are present in other parts of the country, such as the Midwest and Pacific Northwest.