The rental sector’s run at the top of the housing ladder has more staying power than most observers think, according to industry experts speaking at the National Association of Real Estate Editors’ annual conference in Denver.
Mark Obrinsky, vice president of research and chief economist of the National Multi-Housing Conference, pointed out that despite the recent surge in apartment production, starts are still far below the “normal” yearly run rate achieved in the ten-year span between 1996 and 2005.
“We’re still 100,000 starts a year away from meeting demand – or maybe more,” Obrinsky said. “Demand will continue to outstrip supply for the next couple of years at least.”
But Terry Considine, chairman of Aimco, a Denver-based multi-family real estate investment trust, and Adam Fruitbine, managing director of the Alliance Residential Co., a Phoenix-based owner and manager of some 60,000 units nationwide, went further, suggesting that their sector could remain healthy “for the next five or six years.”
Although apartment building came to a virtual standstill in 2008, and starts are back up to the 200,000-plus level, Fruitbine noted that developers are still having a difficult time obtaining funding.
“Trying to get capital is unbelievably hard,” Fruitbine said. “There are only three or four markets investors want to be in right now. Absent these, a lot of fundamentally sound markets have been overlooked, and developers there can’t keep up with demand.”
“Other than the major gateway cities, capital is quite cautious,” said Considine, whose REIT owns and operates more than 300 properties in 30 states.
None of the panelists sees much danger of overbuilding, at least not in the near term. For one thing, they said, it takes far longer to gain approvals to put up an apartment building – sometimes two years or more – than it does a single-family house. Also, there is not yet enough capital available for developers to saturate the market with multifamily product.
“Taking a chance on multifamily is just not a high priority” for investors,” said Fruitbine. “They want low-risk opportunities and are still cautious to put their money into certain markets.” Panelists also pointed out that the market is supported by strong demographics, including a surge of young adults who typically rent. And today’s young adults are not particularly interesting in owning anything right now, Obrinksy said.
“Whether this will be the case going forward, I don’t know,” he said. “But in this era of Netflix, ZipCar, BikeShare and e-books, it’s the use they want, not ownership.”
Fruitbine put it a bit differently, saying today’s young-adult cohort favors its independence. “They don’t care where they live as long as it is not at home,” he said. “They don’t want to see the inside of a house again for a long time.”
The younger, less-attached demographic won’t be competing for apartments with people who have lost their homes during the recession because former owners tend to rent single-family houses from investors who have been gobbling up foreclosures and short-sales, the panelists said.
“There’s no question the apartment sector has benefitted from the troubles in the single-family market,” said Fruitbine. “People need a place to live; there’s no getting around that. But they want space, and we are not building five-bedroom apartments.”
Obrinsky noted that the owner-occupied and rental markets don’t need to detract from each other. “Both can and will rise at the same time,” the economist said.