Major Multifamily Housing Updates
After two years of historical performance, multifamily real estate is moderating. According to the National Association of Home Builders (NAHB), multifamily starts are expected to fall in the first half of the year, following an unsustainable high level of production seen in 2022. Read on to see additional multifamily housing updates for 2023.
There are currently 943,000 apartments under construction, a 24.9 percent increase over the previous year; since 1974, this is the highest number of apartments under construction. One-third of the country lives in rental housing, which supports 17.5 million jobs and generates more than $3.4 trillion in economic activity annually. The policy difficulties that the industry is experiencing are equal in size and scope, affecting businesses of all kinds and types in every industry sector, from new development to property management.
Over the past few years, the pro-housing movement has expanded quickly, resulting in legislative successes across the country. The movement aims to provide more moderately priced homes and improve the variety of housing options. Zoning amendments legitimizing duplexes, townhouses, and apartments are only a few policy levers that can accomplish these aims. Other procedural adjustments can streamline, speed up, and improve the transparency of the housing construction process.
NAHB reported that the number of permits issued in eight of the top ten multifamily markets increased year-over-year from November 2021 to November 2022. The largest region in the country, New York-Newark-Jersey City, saw a nine percent increase in permits, while Atlanta-Sandy Springs-Roswell, Ga., saw a 203 percent increase.
These regulations and permits have a tremendous hold on the overall cost of multifamily development projects. A wide range of government rules, such as design standards, zoning constraints, building codes, permitting requirements, public land requirements, and other additional city fees, may apply to apartment and condo buildings. All of which are intensifying and elongating the country’s ongoing affordable housing crisis.
What’s Impacting Multifamily in 2023
During the past two years, the multifamily sector has been operating tremendously well thanks to record rental demand, rising rental prices, and accelerating demographic changes that have caused a massive influx of people into new markets. However, slowing rent growth, rising unemployment, higher interest rates, and supply chain disruptions have resulted in a significant backlog of multifamily developments.
Fears of a looming recession, which causes slower income growth among renters, add additional pressure for pricing multifamily assets, which explains the recent decrease in market rents nationwide.
The lack of debt and equity for new developments and acquisitions is the most significant challenge currently threatening the industry.
Affordable Housing + Economic Impact
The U.S. is in the midst of an ongoing affordable housing crisis. To put this crisis into perspective, almost 19 million American households spend more than half of their income on housing, and hundreds of thousands don’t even have a home.
This lack of affordable housing has sent tidal waves throughout the U.S. economy.
- Due to high housing costs, low-income families have little left over for other essential expenses, forcing them to make difficult budget trade-offs.
- Housing insecurity can jeopardize children’s academic performance and success, as well as contribute to long-term achievement gaps.
- The crisis has had severe implications for children and adults’ overall well-being and health.
Access to more affordable housing options can increase local purchasing power, create jobs, and generate additional tax revenue. Other additional benefits include:
- Access to decent, affordable housing would provide critical stability for families and reduce their likelihood of becoming homeless.
- Affordable housing can promote health by offering stability, freeing up food and medical care funds, and enhancing access to amenities in desirable districts.
- Affordable housing upgrades that are environmentally friendly can enhance the health of low-income families, especially those with asthmatic children. Reducing asthma symptoms and missed school days can lead to improved academic achievement.
Increased legislative activity has addressed the crisis, including expanding Low-Income Housing Tax Credits and President Biden’s Build Back Better Act, which proposes an inflation-adjusted 10 percent addition to nine percent LIHTC allocations from 2022 to 2024.
In short, multifamily housing is likely to be impacted by changes in working habits, housing preferences, and labor market conditions. Nonetheless, despite going through a public health crisis, lack of essential supplies, and a high inflation environment within the past two years, multifamily has remained resilient, and 2023 should be no different