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Multifamily Keeps Benefiting From Hurting Housing Supply

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In the 2022 US housing report from the National Association of Realtors and Move.com, which operates Realtor.com for the NAR, the big news is more of the same. The market is now, by their count, 6.5 million new single-family homes short of population and household formation growth. For multifamily, that turns into good economic news.

It’s impossible to look at multifamily independent of single-family homes because the two markets are intertwined with household formation. Between 2012 and 2022, there were 15.6 million household formations in the US, according to NAR, with nearly 2.1 million last year.

As formations happen, they need to live someplace, but there aren’t enough traditional single-family homes. During those 10 years between 2012 and 2022, 9.03 million single-family homes were started, with 8.5 million completed. That would be a 7.1-million-unit gap. There were also 4.2 million multifamily unit starts and 3.4 million completions.

The home ownership rate oscillates between about 63% and, at its high point in the fourth quarter of 2004, 69.2%. The current level is 65.9%. That should have meant more like 10.3 million completed single-family homes.

The market gap is where multifamily provides something of a stopgap. As NAR noted, “The gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022. However, including multi-family home construction reduces this gap to 2.3 million homes.”

However, there weren’t enough multifamily units created to accommodate 34.1% of the housing volume, which would be 5.4 million, far more than the 3.4 million delivered.

This is where the market turns interesting. In 2022, multifamily unit construction increased, “reaching 35.1% of all housing starts by the end of the year, a level not seen since 2015.” That is a rate at which the housing market could begin to catch up and hit a sustainable stride.

Looking at the NAR analysis, over the 10-year period, 340,000 multifamily units were delivered per year on average. A recent research brief from CBRE projected that 716,000 multifamily units will reach the market within the next 24 months, or 358,000 a year, or a roughly 5.2% increase over the baseline. That’s an improvement, but not enough to catch up in the short run.

“If only single-family homes are considered, the rate of housing starts would need to triple to keep up with demand and close the existing 6.5 million home gap in 3 to 4 years” NAR wrote. “However, if the rate of total (multi- & single-family) housing starts increased by 50% from the 2022 rate to an average rate of 2.3 million housing starts per year, a pace of construction on par with what we saw in the early 1970s and some of the peak months for building in the mid-2000s,  it would take between 2 and 3 years to close the existing 2.3 million home gap, assuming the 2012 – 2019 average rate of household formations (~1.3 million households per year).”

One lesson for the multifamily industry to take — supported by the fuller CBRE analysis — is that the housing need is so great, worries about an oversupply overwhelming demand and leading to an undercutting of the market are probably unfounded.

 

Source:  GlobeSt.

 

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South Florida Counties Among The Hottest Commercial Markets In The U.S.; They’re Also Less Affordable To Live In

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Miami-Dade County tied with six other markets with populations over 250,000 for having the strongest commercial real estate market conditions in the nation, according to a study released today from the National Association of Realtors.

Miami-Dade tied with census metro divisions covering Tampa, and Fort Myers in Florida with an index of 76, the highest score achieved by communities of more than 250,000 people. Also scoring 76: Charleston, South Carolina; Durham, North Carolina; Kennewick-Richland, Washington; and Nashville, Tennessee.

Gay Cororaton, senior economist and director of housing and commercial research for NAR’s research group, said index points are awarded when an area outperforms the national average on criteria such as job growth, employment, salary growth, inventory absorption, and low vacancies/rent increases in apartments, offices, retail, and industrial. The highest possible index score of 100 is only awarded when a metro area “outperforms” the nation on every single indicator, Cororaton added.

Although not scoring 76, several other Florida metro areas with large populations, including Broward and Palm Beach counties, had high index points. Palm Beach County scored 72, which tied it with Florida regions that included Jacksonville, Naples, Port St. Lucie, and Orlando. Broward County had an index of 68.

Additionally, the vast majority of Florida’s metro divisions above 250,000 people received indexes higher than 50, Cororaton said. Exceptions were the Tallahassee and Panama City areas, which each received indexes of 48; and Sebring, which scored 47.8.

“If you are over 50, you are performing ahead of national conditions,” Cororaton said. “Florida is doing really well.”

In the past year, Florida was second only to Texas in population growth, rising by 211,196 residents to more than 21.78 million people from July 1, 2020 to July 1, 2021. Local real estate analysts credit the migration of people and businesses from other parts of the U.S. – in search of lower taxes, minimal regulation, and better weather – for South Florida’s uptick in residential and commercial rents, which are higher than the national average.

This migration has contributed to making South Florida an even less affordable place to live. In the fourth quarter of 2021, Miami-Dade renters spent an average 22.9% of their income on rent, Broward renters spent 23.4%, and Palm Beach County renters spent 27%. Across the U.S., renters spent an average of 16.3%.

Residential rents continue to rise, too. The average effective monthly rent for 4Q 2021 in Miami-Dade was $1,997, an increase of 19.6% from the previous year; in Broward it was $2,075, up23.2%; and in Palm Beach County $2,273, a hike of 31.9%. Nationally, the average monthly rent in 4Q 2021 equaled $1,543, an increase of 12.2%.

At the same, sales transactions of multifamily buildings, and prices, are rising faster than the national average, the report noted. Additionally, all three counties had apartment vacancies lower than the national average of 4.6% with Miami-Dade’s vacancy rate at 3.5%, Broward’s at 3.1%, and Palm Beach County’s at 4.1%.

The NAR report noted that all three South Florida counties had job creation in the 4Q of 2021 stronger than the national average. Miami-Dade posted a 6.2% increase in non-farm jobs, a 4.3% increase in Broward, and a 5.1% increase in Palm Beach County than the year before. The national average was 4.1% higher than the prior year.

It was more mixed within South Florida in terms of unemployment and salaries, though. NAR reported that Miami-Dade’s wages increased 6% from the previous year to $1,004 a week, and recorded an unemployment rate of 5.1%. In Broward, wages went up 2.8% to $1,019 a week with an unemployment rate of 4.3%. In Palm Beach County, average wages went up 1.8% to $970 a week while its unemployment rate was 4%. Nationally, average wage growth went up 4.8% to $1,080 a week, while the unemployment rate was 4.2%.

In non-residential commercial sectors, the NAR report stated that the office, industrial, and retail markets of South Florida’s three counties were stronger than the national average, with each posting lower vacancy rates and higher absorption rates in all three sectors than the averages of the rest of the United States. The report did note that industrial and retail sales transactions in Miami-Dade didn’t rise as fast as the rest of the nation, while in Broward and Palm Beach industrial and retail traded at a faster rate. In Palm Beach County, offices traded more slowly than the national average.

 

Source:  SFBJ

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