Saturday, May 17, 2014

"Generation rent" raising demand for multifamily housing

One of the reasons we continue to see negative signals from the US housing market (see post) is the weakness in the single family housing sector. The strong housing report yesterday was driven by surging apartment construction. That trend is expected to continue.
Reuters: - The housing starts report suggested building activity would likely continue to rise for some time as permits to build homes jumped 8.0 percent to a 1.08-million unit pace in April, the highest since June 2008.

Permits for single-family homes, however, rose just 0.3 percent and continue to lag groundbreaking, suggesting single-family starts could decline in the months ahead. A survey on Thursday showed confidence among single-family home builders slipped to a one-year low in May.

In contrast, permits for multi-family housing soared 19.5 percent. Multi-family permits are running well ahead of starts, which could indicate delays in getting projects started. Permits for buildings with five or more units were the highest since June 2008 - [see Twitter post]
Americans are adjusting to this new rental culture, as the number of single family housing starts falls to new lows relative to the total new housing construction.
1-unit housing starts as a fraction of total housing starts (source: St. Louis Fed)

To be sure, home construction in the US is still far below what the nation will need in years to come and it's only a matter of time before the US faces the same type of housing shortage that exists in the UK (see post).

Housing starts as fraction of US population (source: St. Louis Fed)

But the so-called Generation Rent is in no hurry to go out there and get a mortgage and is willing to pay up for the mobility offered by rentals (forgoing mortgage tax deduction). Given the demand, apartment owners on the other hand are not shy about getting a mortgage for rental properties. The proportion of multifamily mortgages continues to rise - a trend that started in 2006.
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