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Jul 21, 2017
Apartment Construction Boom Expected to Last for Now
A demand for newer and more apartment units has fueled the national construction industry since the depths of the Great Recession.
And according to a new study called U.S. Apartment Demand—A Forward Look, the apartment boom is partly due to that recession.
“Disillusioned by busting of the house price bubble that destroyed equity, many former home owners continue to rent today,” says the study, released jointly by the National Multi-Family Housing Council and the National Apartment Association.
That busting of the bubble occurred between 2007 and 2010 and really represented, according to the study, “a paradigm shift in the U.S. among households.”
“A lot has happened in the last few years,” remarks Michael Dinn, one of the authors of the U.S. Apartment Demand study.
“We had a lot of single-family detached housing,” notes Dinn, who is the president of Dinn Focused Marketing, Inc., which focuses on residential marketing and marketplace analyses.
But when millions of homes went under water during the Great Recession, home owners decided it made more economic sense all around to rent.
“And that has resulted in a great surge in apartment construction, which is still going on today,” says Dinn.
The new apartment construction boom has not been producing the familiar one and two-story cinder block, motel-like, rectangular apartment complexes of the 1960s and 70s.
Instead, says Dinn, contractors have increasingly been putting up “upscale, better product, with taller ceilings and more unit yield.”
Such units, continues Dinn, bring with them “a larger experience.”
“And whether you are a young Millennial or someone older, the choice of floor plans, the amenities that are there, the sense of sanctuary for people who work all day and want to come home to something nice, is very important,” he says.
New apartment construction has been strong in the South, particularly in Florida and Texas, while such Western metro areas as Phoenix and Las Vegas have also experienced a boom.
But large parts of the Midwest have seen significantly lower demands for apartment space, prompting the U.S. Apartment Demand study to caution: “Slower growth markets are much more likely to experience new demand growth in specific neighborhoods. Developers and investors should evaluate these markets carefully for new growth as well as revitalization of existing neighborhoods.”
Interestingly, while both Baby Boomers and Millennials have helped to spur the demand for more apartments, the market has also been considerable bolstered by the country’s immigration population.
“As the U.S. population ages, growth is slowing and becoming increasingly dependent on immigrants, who have a higher tendency to rent,” the study notes.
But while international immigration numbers have worked to offset overall negative population growth in such cities as New York, Detroit, and Chicago, the largest source of immigration in recent years, Mexico, is actually providing the U.S. with fewer and fewer immigrants.
Those numbers, in fact, have dropped from more than 400,000 people annually more than a decade ago, to just over 200,000 per year in the last decade.
Even so, says Dinn, builders have recognized that for the present, in no small way due to the Great Recession, there has existed a pent-up demand nationally for more apartments.
“The demand has been there and development teams and their financiers have recognized that this is a new asset class going forward,” says Dinn.
Dinn says that builders during these same years have not seen an equal demand for new retail and office space.
An additional factor contributing to the apartment boom has been the apartments themselves.
“The word ‘apartment’ used to have a stigma to it, you used to read of things like ‘low-income shelter,” Dinn says.
But that image has changed with recent apartment construction that sees “gleaming new products, towers with great choices, great designs, great solutions for parking, technology, and safety.”
“It’s something that today is providing a great housing experience,” adds Dinn, “it just happens to be a rental.”