GREENVILLE, NC (Stacker.com) — The pandemic has put a strain on the housing market. Home purchase prices are more expensive than ever, and most markets now have a shortage of inventory that makes it difficult to find a single or multi-family home at any price.
To identify what is helping to drive strong investor demand for multi-family housing and determine how this trend is affecting renters who depend on these units for housing, EquityMultiple has compiled a list of five ways investment trends have affected the multi-family real estate sector. reports on rental trends and the multifamily housing sector.
Imbalanced supply and demand in the housing market disproportionately affected certain demographics and types of buyers, while high-income buyers and investors were able to capture more of the market , sometimes even before a list is made public. This is happening in urban and suburban markets across the country and the trend in real estate investment does not appear to be abating in the near future.
Investors aren’t just focusing on individual units either. Multifamily properties – which are properties that include more than one unit, whether a duplex, a townhouse complex or an apartment building, have become a product of choice for investors during the pandemic – and for good reason. These properties tend to be low risk, high return for good investors and offer the opportunity to enjoy multiple units with a single property purchase.
Keep reading to learn more about multifamily real estate trends.
1/5Grand Warszawski // Shutterstock
Recent rent growth has been explosive for multi-family properties
The multifamily rental market was hit early in the pandemic, but has since recovered and is now thriving in most metros. By mid-2021, rent growth had risen 2.5% year-over-year and was back to pre-pandemic levels – and it has only continued to build momentum ever since.
The national average asking rent for multi-family units rose 13.7% year-over-year to an all-time high of $1,572, according to Yardi Matrix’s October survey. This is great news for investors, who are able to capitalize on rental growth trends and increase rental prices to see higher returns on investment. It’s not so good for renters, however, as they face steadily rising multi-family rental prices at a time when other types of housing are in short supply.
Rising rental rates are making affordable housing difficult or impossible to find for many American renters and are expected to contribute to an eviction crisis that will hit already vulnerable communities the hardest.
The extreme shortage of Class B, C housing and labor signals many opportunities for creative developers and property investors to offer development, rehabilitation and densification.
2 / 5ABC Photo // Shutterstock
Demand for multi-family units is strong and expected to continue
The demand for multi-family housing is extremely high right now and should remain so for the time being. Census November housing data shows national vacancy rates in the third quarter of 2021 were 5.8% for rental units, an extremely low rate.
Part of the low vacancy rate is due to the lack of available units. Buyers would normally vacate rentals, making room for new tenants to move in, but the crushing demand for housing has made shopping out of reach for many people, especially first-time buyers. Thus, these households remain in their rental units, even if rents are increased to new levels. This has led investors to bet big on buying rental units, which has spurred demand for multi-family units that offer faster scaling and higher monthly cash flow, not to mention be easier to fund in some cases.
3/5karamysh // Shutterstock
Leases renew and tenants stick around
There was a rapid decline in multifamily rental activity at the start of the pandemic, but this downward trend is no longer an issue. New leases have been on the rise since February 2021, and there is also an interesting trend of current tenants renewing their existing leases. As with the increase in rental demand, this renewal trend can largely be attributed to a lack of inventory. Lease renewal rates are now higher than new leases, which is further evidence that tenants are staying in their homes. This is a huge plus for investors, as rent turnover and vacancy issues can be extremely costly. This is not such a big advantage for tenants, however, who may be stuck facing rent hikes or other rent-related issues with no other alternatives.
4/5Volodymyr Kyrylyuk // Shutterstock
There is tons of competition from global and local investors
U.S. multi-unit transaction volume hit a quarterly record high of $63 billion in the fourth quarter of 2020, and that was driven, in large part, by an increase in investor demand. American investors are not the only ones who have set their sights on the multifamily housing market. Investors around the world have increased their allocations to multi-family dwellings, a trend that has continued since the start of the pandemic. Rental prices have held up despite the economic difficulties of the past two years and there is now a ton of money to be made for investors.
5 / 5LesPalenik // Shutterstock
Continued demand will almost certainly follow supply
Another driving force behind the rise in multi-family investment is persistently high rental demand relative to supply. The housing shortage has driven the construction of new housing – multi-family and otherwise – at a breakneck pace, with new units being built in suburban and urban areas at a record pace. That said, new construction is unlikely to dampen the return on investment for investors in the multifamily market.
Analysts believe continued demand for rental units should keep pace with new supply, meaning there will be enough demand for investors to maintain healthy occupancy in multi-family properties for the foreseeable future. Consistently high demand in multifamily markets is the result of a complex confluence of factors, including changing demographics, low homeownership rates, zoning regulations, and underconstruction of non-luxury multifamily properties in popular areas.
With sky-high demand and tight housing options, tenants are unlikely to see significant relief in the near future. But in the years to come, forward-looking multi-family investors may be able to earn attractive returns while increasing the supply of market-priced housing, thereby reducing costs for tenants in an otherwise rental market. inflated. This story originally appeared on EquityMultiple and was produced and distributed in partnership with Stacker Studio.