Investors are eyeing development opportunities in what might, at first glance, seem an unlikely prospect: bedroom communities. Those small communities outside urban areas and often even beyond what is considered the suburbs are of interest to developers for several reasons. Why are these areas becoming a popular choice for multifamily housing developments? Might they be right for your next commercial construction endeavor?
Here are the dynamics and unfolding story commanding attention from savvy decision-makers.
Why developers are looking to bedroom communities for multifamily developments
Bedroom communities are drawing the attention of developers and investors in multifamily housing developments for myriad reasons. The factors at play here range from the current state of the housing inventory throughout the country to the pricing of single-family homes.
- Housing inventory in the United States continues to put a squeeze on buyers. The past few years have been tough for would-be buyers of single-family homes, including quiet commuter communities outside of urban areas. The housing shortage, which led to bidding wars in many markets, has also driven frustrated prospective buyers into the rental market. Realtor.com last year estimated that an additional 5.24 million homes were needed to bridge the gap. Construction of single-family homes continues to lag behind demand, and experts predict inventory will continue to come up short in the coming year. Not to mention, with labor shortages and cost increases, this looks to be a long-term hurdle for buyers with no short-term fix.
- Pricing for single-family homes continues to increase. While buyers may find that pricing for homes will moderate some in 2022, we're still looking at a seller's market. According to the National Association of Realtors, the national median home price topped $362,800 last year, which was an all-time high. Even if that moderates, many buyers will continue to find themselves priced out of the competitive market and in search of quality multifamily housing instead.
- Mortgage rates are rising. Experts predict mortgage rates will increase this year, bolstered by inflation and economic growth. Those rising mortgage rates, paired with pricing increases, will continue to challenge some buyers, especially first-time homebuyers on a tighter budget.
- Demand for housing in bedroom communities and suburbs is likely to continue to be strong. As the nation continues to try to manage the pandemic, many businesses remain dependent upon a remote workforce — with some showing no intention of returning to the workplace anytime soon. For many workers, that means they have the freedom to seek out new places to call home, and many crave the quality of life and value for the dollar that a bedroom community can provide. An occasional commute necessary for a hybrid work situation may not deter people moving out of the city when there's so much to be gained.
- Overall, homeownership across the nation is declining, according to the U.S. Census Bureau. That means vacancy rates for rental properties are also declining, and rents are climbing.
- Analysts say small suburban communities are the most convenient market for multifamily housing developers. Why? Simply put, less red tape, with zoning approvals oftentimes easier. The cost of land can be less in suburban areas than urban areas. And construction loans are also sometimes easier to secure with local financial institutions.
Is it time to explore bedroom communities for your next multifamily housing build? ?
While some bedroom communities may seem sleepy, sleeping on this development opportunity could come at a cost. Demand remains high for multifamily housing in these markets, as inventory for single-family homes and pricing of properties remain prohibitive to many would-be buyers. The design-build construction model ensures everyone working on the project shares your vision, operates as a single entity and moves toward the same goalpost of success. In the end, that positions investors favorably to make the most of this unique opportunity in the market today.
