Multi Family Construction Trends

As mortgage rates stay high, and inflation shows no signs of slowing down,?we continue to be told that a housing shortage is prepared to stay stayed for the distant future . The Fed increased rates another 75 basis points and cited no plans of slowing down. As we continue to battle through these tough times, we reach a more unique inflation adjusted housing market.

Housing Construction however is at an all-time high,?but this is partially due to construction delays and backlogs in today’s unique environment .?Total units being constructed reached 1.7 million units, setting a record high for the nation. ?This is an increase from about 1.55 million units in January. The difference between these newer construction numbers compared to the past housing shortages is the split between single and multifamily units. At the bottom right corner of this graph, you'll notice the recent trends of building multi-unit structures. From 2014-2020, there wasn’t much growth, but in the last few years we’ve seen a steady incline. Furthermore, since 2021 there has been a drastic drop in single-family unit construction, potentially from higher costs, rates, or market uncertainty as a whole.

When looking at monthly starts of construction, you find a similar trend. In the years leading up to the 2008 housing crash, single family homes being built were rising at an increasingly ridiculous pace. After the crash, things dropped drastically, and slowly grew over time but not nearly to it’s previous highs. Single family construction in the last year tapered down, as rates started to rise and prices were too high, but more relevant is the increase from just under 400,000 units, to just under 600,000 units of multifamily construction starting. The shortage is being solved in a different fashion.

Twice before we have compared mortgage payments now to a year ago,?and with recent 30-year averages at 6.25% ?(highest since 2008), the cost of debt has only gone up.?In September of last year, the 30-year mortgage rate was 3.07% . If you were to close on a $600,000 home then and put down 20%, your monthly payment would be $2,041. Today, at the same $600,000 price point, your monthly payment would be $2,955, a 44.8% increase.

As rents continue to rise, and homes in popular areas are becoming more scarce, multifamily rental properties could be the only available option for housing, especially for younger generations.

What is happening?

• Rates continue to rise
• Construction is trending towards multifamily
• It is increasingly difficult to buy

What are we doing?

• Targeting multifamily construction
• Targeting build to rent developments