The rental sector’s run at the top of the housing ladder has more staying power than most observers believe, a panel of apartment business executives said 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 10-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 multifamily 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 their sector could remain healthy “for the next five or six years.”
Fruitbine noted that apartment building came to a virtual standstill in 2008, and that while starts are back up to the 200,000-plus level, the net number of units added to the market is far lower. He also said that developers are still having a difficult time obtaining funding.
“Trying to get capital is unbelievably hard,” Fruitbine said. “There’s 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,” agreed Considine, whose REIT owns and operates more than 300 properties in 30 states.
None of the panelists see much danger of overbuilding, at least not in the near term. For one thing, 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. For another, the market is supported by strong demographics, including a surge of young adults who typically rent until they marry and have children. And today’s young adults are not particularly interested in owning anything right now, Obrinksy told the conference.
“Whether this will be the case going forward, I don’t know,” the economist 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 former owners who have lost their homes for one reason or another during the recession because the ex-owners tend to rent single-family houses from investors who are gobbling up foreclosures and short sales, the panelists also said.
“There’s no question the apartment sector has benefited 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 also told the housing writers that the homeowner and rental markets don’t need to be at loggerheads. “Both can and will rise at the same time,” the economist said.
