Economic Update (April 30, 2013)

Strong Rental Demand Still Driving Fundamentals for Multifamily Housing

The demand for rental housing continued its strong growth in the first quarter, with total rental household growth accelerating to a 3.1 percent annualized rate. The number of owner-occupied housing units, in contrast, continued to decline.

Demand for rental housing shows no signs of slowing, even as the single-family home sales market shows signs of new life. In part this reflects investors who are buying homes to convert to rental use. In addition, however, the large pent-up demand of potential renters who are currently doubled-up with family and friends provides strong support for multifamily housing, and will likely continue to do so well into the future.

The state of household finances makes renting a more attractive option than home purchase, and it will take years for many of those currently sharing living space to save for a down payment and qualify for a mortgage to buy a home. In short, worries about the end of the renter era are premature.

The recent data on household formation also dispel concerns about a coming wave of supply across the nation. The number of occupied rental households rose 610,000 over the past four quarters. Even taking into consideration those single-family rentals mentioned above, the growing demand far exceeds new construction; multifamily housing starts rose in the first quarter to a 325,000 annual rate. Some markets face a burgeoning supply pipeline, but the overall balance between new construction and household formation across the country indicates a further firming of rental occupancy rates this year and next.

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The Market Commentary blog on reit.com presents analysis of the macro- and micro-economic fundamentals impacting the REIT and commercial real estate industry. The Nareit economics team offers their commentary on the state of the market, the outlook for commercial real estate and breaking macroeconomic news. The opinions set forth here are solely those of its author(s), and do not necessarily reflect the views of the Nareit or its membership. For more, see our Terms of Use.