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Multifamily Demand Forecast – My Top 3 Takeaways

Freddie Mac recently released their Multifamily Demand Forecast for the next 3 years. The analysis took an indirect approach to examining the multifamily market through the rental unit share and vacancy within the single-family housing market. The results were very interesting and it was great to compare some of the market assessment numbers to the independent research that we conducted last fall.

Figured I’d take this post to share a few of my biggest takeaways from the forecast.

  1. Increased Rental Demand – Assuming a slow economic recovery (as opposed to no recovery or an accelerated recovery), rental demand will continue to grow faster than historical averages, an estimate of 1.7 million net new renter households between now and 2015. That’s over 400,000K units per year! Even with an accelerated recovery (meaning more home ownership and less demand for multifamily rentals), Freddie Mac expects the development of over 250,000K+ units per yr. Quite a jump from 2011, when only 167,000 units started construction. Bold predictions, indeed. However, since vacancy rates drop to 5% last year while rent increased 4.9% means it’s probably a good sign that supply is getting low and construction needs to ramp-up.
  2. Market Dynamics – As far as market dynamics were concerned, there were a couple of numbers that jumped out at me. First that currently only 42% of the rental market is multifamily. I assumed multifamily rentals to be more than 50% of the overall rental market. And secondly, that renters make up more than 20% of the single-family space. The big surprise here is to see that the rental market of single family homes is now trending back to pre-recession numbers.
  3. Home Ownership and Rental Headship Rates Skewed by Gen Y – We always knew that young adults were more likely to “double” up, but it’s interesting to see that Gen Y’s comfort level and desire to return to their parent’s homes is affecting not only home ownership, but the rental market as well. Probably not enough to skew the data substantially at this point, though if this cultural shift continues, we could see the need for a change in traditional supply and demand methodologies.

To read Freddie Mac’s report in full, click here.


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