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June 23, 2016
Multifamily Faces Supply Challenges
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Yesterday, the Harvard Joint Center for Housing Studies (JCHS) released its State of the Nation’s Housing 2016 report, concluding that the overall housing market had recovered despite slow economic growth. The multifamily sector continued to lead the rebound, although single-family was poised to be a strengthening economic contributor going forward.

Demographics were the biggest contributing factor to apartment growth, as rental demand increased across all age groups, income levels and household types. In fact, renters accounted for all of the net growth in households since 2005.

However, the report cited concerns over rent growth and rising property valuations and the effect on rental affordability. While multifamily construction activity is ramping up, a demand-supply imbalance exists. Furthermore, multifamily costs are climbing while the real median renter income is falling.

“Last year, we built over 400,000 new multifamily units, most of them rental,” said Harvard JCHS Director Chris Hebert during a related webcast. “But we had a million new renters. So, for as much as we’ve been building new supply, we’re still struggling to keep up with new renter demand.”

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Multifamily Market Dashboard

Single-Family Market Update

Compared with the multifamily market, the single-family market recovery has been much more subdued. However, a look at new construction activity, home prices and existing home sales in concert shows that the single-family market now appears to be largely back in line with demand.

Take existing home sales for example. The volume of existing home sales may seem weak, but the ratio of existing sales to total number of households offers an alternative picture.

Over the last 45 years, that share has averaged just under 4.1 percent. During the housing bubble years, that share exceeded the historical average. It dipped below the average in 2008-2012 and has since bounced back. It’s now sitting right at the long-term average, suggesting resale activity is actually rather strong.

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