The apartment sector is a bright spot in the overall housing market. However, the lack of credit to finance the development of new apartments is likely to cause a supply and demand imbalance, said panelists during press conferences held at the National Association of Home Builders (NAHB) International Builders' Show (IBS) in Orlando, Fla.
Multifamily housing demand will outpace current capacity to finance production and could put the brakes on the recovering industry. "While we are forecasting construction of 208,000 multifamily residences in 2012, that figure is well below the 350,000 units a year that is needed to maintain balance in the market," said Sharon Dworkin Bell, NAHB senior vice president for multifamily and 50+ housing. "As the economy improves and first-time job entrants find employment, the need for apartments will continue to increase."
The multifamily market suffered a serious slowdown in production from 2008-2010, causing an inadequate supply of new multifamily rentals. "We have one of the largest young adult populations entering the job market today," said Ron Witten, president of the market research firm Witten Advisors that works with multifamily developers. "However, as an industry, we can't keep up with this demand right now. This is likely to put inflationary pressure on rents, resulting in higher rents for consumers," Witten cautioned reporters and other industry representatives attending the press conference.
Developer W. Dean Henry, president of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB's Multifamily Leadership Board, said he sees credit restrictions affecting recovery. "Capital is limited in this current market, and developers are having a difficult time obtaining the credit needed to finance the development of new apartments," said Henry. "Credit restrictions are so tight that even developers with a strong balance sheet and reputation are having difficulty."
Additionally, the segment of the housing industry that caters to those home buyers and renters who are 55+ years old saw gradual but steady improvement in 2011. This trend is expected to continue throughout 2012 as more baby boomers turn 55 and seek new homes and communities that offer the lifestyle they desire. However, since the conditions of the current overall housing market are limiting their ability to sell their existing homes, this market is not recovering as quickly as might have been expected.
Like the overall single-family housing market, the 55+ housing segment is facing a slow but steady recovery. "NAHB is projecting that the number of housing starts in 55+ communities will increase 18 percent to 53,200 units in 2012, and another 25 percent, to 66,600 in 2013," said Paul Emrath, NAHB's vice president of survey and housing policy research.
Emrath said the multifamily segment of the 55+ housing market is doing particularly well, with an estimated 57 percent increase to 21,300 starts in 2011, and further increases in the forecast of 25,400 new apartments in 2012 and 29,100 in 2013.
According to NAHB, the 55+ housing market should continue to gradually improve over the next few years. "Nevertheless, this market remains fragile as many people in this sector who would like to purchase a new home are having difficulties selling their existing homes," noted Emrath. "The issues constraining their ability to sell are the same issues restraining the overall single-family housing market - low appraisals, a large supply of foreclosures and tighter mortgage lending criteria."
Knowing their customer base is important for builders' success in the current economic climate. "The 55+ builders who are doing well in these challenging times are innovative and creative and are in touch with their customer base," said W. Don Whyte, president of Kennecott Land in South Jordan, Utah, and incoming chairman of NAHB's 50+ Housing Council. "Successful builders also continually conduct market research on buyer's preferences and needs."
"Meeting the needs of buyers in the 55+ market involves having a more focused and targeted strategy on how to design, build and market new homes," said Whyte. "Successful builders and developers in the current market will encompass this approach."
NAHB: Multifamily, 50+ housing improving but facing challenges
February 9, 2012