Multifamily Apartments: Five Big Trends

What "big trends" are driving the multifamily industry?  Forget about what's next; this post explores what's here.  Now.  It's easy to get lost in the minutia of multifamily.  We have daily operations to address while planning for next month, next quarter, next year.  The following are five trends occurring in our industry that will be taking up more space in your email box and brain in the coming years.  Notwithstanding the fact that they are occurring as we speak...

1. Technology.  Rapid technological advances cannot be ignored.  It's imperative to be a "first adapter" in an attempt to keep pace.  When a twelve-year-old can help Mommy find an apartment on their smartphone we need to be there; on mobile, online, with current information and availability.

Tech is part of our daily lives on every level from the food we eat to the units we lease.  Technology allows us to "connect" with our customers, broadly and specifically.  From Living Social to Facebook to PayPal, there is no getting around greater forthcoming integration into the multifamily business.  Carve out your niche here and own it.  Note that this cannot be 100% outsourced.  Someone in-house must know where all the wires are located.

2. The decrease in family size. From 2000 to 2010, family size has decreased by about one percent. Many would say this is statistically insignificant.  But let's translate that number into the increase in households created based on this change.

According to America's Families and Living Arrangements: 2010, the average household size declined to 2.59 in 2010, from 2.62 people in 2000. This is partly because of the increase in one-person households, which rose from 25 percent in 2000 to 27 percent in 2010, more than double the percentage in 1960 (13 percent). These data come from the 2010 Current Population Survey, which provides a look at the socioeconomic characteristics of families and households at the national level.

In 2010 there were approximately 114 million households in the U.S. Therefore, a one percent increase in the number of homes needed (to house the same number of people but with fewer people per household) equates to a need for an additional 1.1 million homes.  Smaller household size equates with greater household formation.

3. The decrease in unit size.  SRO (Single Resident Occupancy) and Micro Units are a trend that will only expand. Construction of Micro's provides a completely different perspective on the unit count, density, and livability.  It's a positive when considering transportation districts than allow for greater utilization of existing infrastructure.

Few people give much thought to how much Architects affect our daily lives.  They keep us safe with progressive street level designs and keep used healthy with the recognition that humans need sunlight.  While multifamily developers require continuous value engineering, Architects want to deliver livable space. Now they will be asked to do this with smaller and smaller individual unit footprints.  Think of a stack unit washer/dryer where in the future, the same single machine will wash and dry while taking up half the space.

4.  Increases in Urbanization.   Jobs are in the cities- jobs and job growth reside most fully in the urban core.  Proximity to jobs and cultural events are in the cities. Suburbia is great if you can afford it, but it usually requires individual access to transportation.  We fully anticipate continued increases in fuel, insurance, and commute times.  This is the trade-off in purely financial terms; live closer to work and pay more in rent or live further from work and pay more for transportation (including personal time based on commuting distance).

5.  Multifamily Product Scarcity (Demand).  Everyone knows that multifamily construction starts have increased.  Will this be enough to meet pending residential construction demand? Considering Item #2 above, the answer is no. Consider also the most recent five years where construction starts were well below delivering just replacement housing (construction of units to "replace" those lost to age, natural disaster, and redevelopment).

Add population increases and few people per household to this equation and a gap begins to develop; low construction starts, plus smaller household size, plus population gains equates to demand exceeding supply.

Recap.  Stay current on technology. Recognize that unit sizes are getting smaller, even as more people move back to the urban core, along with decreasing average household size.  And stay in tune with your local market to take advantage of your soon-to-be scare product type.  And do all these things at the same time.  Just another day at the office, right?


John Wilhoit is the author of the best selling book on rent roll analysis: How to Read and Rent Roll. See also the companion guide to measuring the quality of rental income: Rent Roll Triangle.  Find JW's Podcast here.

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