Apartment demand will rise at a more moderate pace through 2035 as the possibility of a “major recession” looms long-term, a soon-to-be-released study by the National Multifamily Housing Council reveals.
The analysis, presented at the recent MHNC Research Forum in Denver by real estate finance professor Norm Miller, predicts that demand will rise somewhere between 25 and 30% lower than prior forecasts. He attributes the change to “almost zero population growth” as well as low immigration levels, but also to the long-term economic outlook. While inflation and economic contraction pose near-term risks, Miller also predicts a recession by 2029 or 2030 because of the federal deficit and growth in Social Security, Medicaid and Medicare entitlements.
Migration trends will also continue to loom large, the research shows, with cities like Dallas, Houston, Charleston, Austin, and Phoenix predicted to come out on top. Miller says metros with better city management, as well a strong tech and life sciences sector, will fare best. The predicted losers? Cleveland, Detroit, New Orleans, St. Louis and Chicago.
From a demographic perspective, Miller also predicts population growth will be driven by older White people as well as older and younger Hispanics through 2035.
The multifamily sector has been white-hot throughout the pandemic, but some near-term headwinds have emerged as of late. A recent report by Yardi Matrix anticipates that household growth and absorption are likely to slow to “more normal levels” this year, moderating anticipated short-term gains, and BTIG Research analysis predicts the pace of new leases, which have posted 15 to 25% growth this year, will likely moderate, particularly in the Sunbelt.
In the latter research, BTIG’s James Sullivan and Ami Probandt noted that they expect increasing turnover due to affordability issues in 2022: “The reported rent-to-income ratios for the REITs have remained stable as we have moved into the post-COVID period,” they note. “However, the REITs only collect income data from new tenants…On the expense side, we expect increasing pressure on real estate taxes as a result of very strong rent growth along with continued wage pressures and insurance rate increases.”