Multifamily Housing Production Enters Sustainable Phase
Although multifamily housing starts are expected to slightly moderate this year and in 2019, production levels are projected to remain stable in a range considered normal, according to experts participating in a press conference during the National Association of Home Builders International Builders' Show in Orlando, Fla.
"For the foreseeable future, production of multifamily housing is expected to be running at a trend level where supply is meeting demand," said NAHB Senior Economist Michael Neal.
Multifamily starts are expected to edge 2 percent lower this year to 354,000 units from a projected 360,000 total in 2017 and fall another 3 percent to 344,000 in 2019.
However, Neal noted this does not indicate weakness in this market segment. "From 1995 through 2005, multifamily starts averaged 335,000," said Neal. "Construction activity during the past four years has been running above this trend, and we are seeing the market stabilizing near more normal production levels."
Ironically, one factor contributing to the stabilization of multifamily activity is the low inventory of homes on the for-sale market. "Fewer homes for sale means that some renter households looking to own will have to rent for longer than they may anticipate," said Neal.
Meanwhile, the national rental vacancy rate registered a slight uptick last year, but stands at its low mid-1990s level of 7.5 percent.
Steven E. Lawson, president of The Lawson Companies in Virginia Beach, Va., whose firm builds both affordable and market-rate housing, addressed the predicted increasing demand for affordable rentals as a growing number of households are rent burdened, meaning they are paying too much of their income in rent.
"Demand is far outstripping supply and the supply-side of the equation is constrained by Low-Income Housing Tax Credit pricing, rising construction costs and higher interest rates," said Lawson.
While the new tax reform law has significantly lowered corporate tax rates, it has also reduced tax credit prices, said Lawson.
"Rising labor and materials costs as well as falling prices for Low-Income Housing Tax Credits have changed the landscape so that some projected affordable projects are no longer viable," said Lawson. "Moreover, labor shortages are driving up labor costs and spreading out construction schedules."
On the plus side, the newly enacted pro-growth tax law will mean lower tax rates for most individuals in all income groups, which will put more money into the pockets of hard-working families, including renter households.
Furthermore, NAHB successfully championed the retention of private activity bonds as part of the new tax law, which will enable the Low-Income Housing Tax Credit to maintain its effectiveness as the most indispensable tool for the production of affordable housing.