Assetsoft - Blog #multi

The Rise in Demand for Housing and the Growth of Multi-family Homes

Fri, 08 Jul 2022 22:12:00 -0500

According to Harvard research reports on the housing conditions in America, they found that the present scenario is quite grim. Housing prices in America are 4.4 times more than the average disposable income of any ordinary household. This means that most American families can not even afford to buy a home; some even find it hard to rent homes. The housing prices are increasing leaps and bounds and further adding to the global housing crisis.

World Finance found that the housing prices in the USA have increased by a whopping 40% since 2000. But the average income of people has not seen such a hike, making affordable housing a real issue for average Americans.

This is where the multi-family homes and their sudden rise is coming into play. Making more homes for a larger community in the same landscape can majorly mitigate the housing crunch. And it is not all a utopian dream; many real cases stand to prove the point. As a property manager and real estate business owner, are you wondering if investing in multi-family homes is the next big thing? You are not wrong.

Here’s how developing and investing in multi-family homes is a smart business move, as well as a great way to handle the social cause of the housing crisis.

The American housing crunch is real

Research data says, an average America who works more than 40 hours a week and earns minimum wage as per the US standards can not stand to afford a typical two-bedroom apartment in the country. But housing shortage has other factors at play.

According to National Association of Realtors (NAR) reports, it found that housing shortage is also caused by slow construction and slow construction results from a shortage of labor. Another factor at play is access to mortgages; without money rolling out, buying and constructing homes become tougher. People are now spending more than 40 - 50% of their salaries on putting a roof over their heads.

How can multi-family homes help

Why are multi-family homes the answer to the impending housing crisis in America or across the globe? The most straightforward answer is that it uses the same amount of land as a single-family home to house multiple families. The rents go down when the number of tenants is more, and it becomes easier for low-income or moderate-income families to afford homes in the city. Moderate-income families need affordable places to stay, and as real estate business owners, you need lower tenant turnover to see profits.

As a real estate investor or developer, you can either construct new multi-family homes or revamp and renovate the old ones to help reduce tenant turnovers. You can even keep the rents slightly lower than the average rent in the surrounding community. Shravan Parsi, CEO of American Ventures, gave a real-life example where keeping their rents slightly lower in multi-family homes kept their occupancy at 95%. It was a win-win.

What is driving the growth of multi-family homes

The population in the US is increasing every day, but the amount of land remains the same, hence the rising demand for more multi-family homes. Here are the major driving factors in the growth of multi-family homes and the future of mass-scale housing.

Low and moderate-income renters

As per data findings, the average income of an American family is $67,521 as of 2020. But the minimum wage is $7.25 per hour of work. Many families work for more than 40 hours a week and still struggle to make the average income bracket. The average rent remains at $1,164, but the rates are much higher in the cities. This makes it extremely difficult for low and moderate-income renters to afford homes. The rising demand for housing from this category of workers is driving the major investment and increased construction of multi-family homes.

First-time tenants

Living in apartments is cheaper, and first-time renters like college students and freshers at new jobs find it harder to rent out whole houses. Many of these new tenants are coming in from rural or semi-urban areas and driving up the demand for multi-family homes to help make housing more affordable for first-time renters.

Senior housing

Government census data says that more than 23% of the American population will be 65+ by 2060. Another type of multi-family housing is full-serviced apartments for senior citizens. These are people who find it challenging to live alone in single homes; assistive living works better for them. This is another factor that is driving up the demand for multi-family homes as a form of senior housing.

Lifestyle renters

Lifestyle renters are pretty new in the market, but they are a major driving factor for multi-family homes. Lifestyle renters are people who earn more than the national average. Ideally, these people can afford single-family homes, but they choose not to buy individual homes to make their lifestyles more sustainable.

Multi-family homes are a self-sustaining business plan

Multi-family homes generate more rent and have a stable cash flow for real estate property managers and businesses to work with. These revenues can quickly pay for maintenance and also get real estate businesses enough cash to invest in newer construction to further the business development. As a real estate business owner, you need to plan your strategy and leadership in a way that it aligns with these rising demands to tap into this market.

Using Property Management the Smart Way

This demand is here to stay, and it will increase even further in the coming days as the population keeps increasing. Are you wondering how you can steer this trend and make it work in your favor? You need to have proper management and leadership to optimize your resources and make the most out of this rising demand for multi-family homes. Start building and investing in these homes to stay ahead of the curve.

At Assetsoft, our team has been working with various kinds of real estate businesses since 2012. We have a decade-long experience in providing advisory services to real estate companies. From technology selection to software integration and other real estate needs, our experts can help.

Talk to us today to know more!

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Is SFR Construction Outpacing Multifamily?

Mon, 18 Oct 2021 07:00:00 -0500

2020 saw an increase in the construction of single-family homes as compared to apartment units, according to Robert Dietz, the chief economist of the National Association of Home Builders.

So, will SFR construction will outpace multifamily with time? Also, apart from SFR, the BFR (Build-for-Rent) sector is slowly gaining ground, according to a report by Walker & Dunlop.

Now, historically, small-scale investors and individual investors have ruled the market. However, SFR has always occupied a certain portion of the rental market. Families having small children, and retired people look for single-family homes with yards and upscale amenities.

The Difference Between SFR And BFR

The commercial real estate sector often sees terms like SFR and BFR used interchangeably. However, they are different from one another.

SFR, for instance, refers to a group of houses located in different geographical areas, and they are pooled together for the sake of investment. These include town homes, single-family detached homes, and also two-to-four-unit properties.

SFR properties are not that hard to find. However, rural markets make up close to 66% of the rental housing stock. If the overall rental space is considered, the SFR market has been a long-standing asset class.

That being said, institutional investors have been making their way into the market.

On the other hand, BFR properties are purpose-built housing.

They are meant to be operated as SFR properties. They resemble multifamily properties. The houses in BFR properties are contiguous and function as a single rental community.

Among those who are familiar with SFR, BFR is a novel concept, something popular among investors and traditional multifamily developers as well. The BFR market forms about 5% of the new homes that are being constructed, but the chart’s on a steadfast ride up.

Why SFR Construction May Outpace Multifamily Constructions

Migration patterns as a result of the COVID-19 pandemic have only caused that demand to rise. Factors such as travel restrictions, and social distancing measures have prompted several renters to look for more space. So, they found their way to suburban markets and also in small metropolitan areas.

Since there was an increase in demand for space devoted to remote work and schooling, the need for larger living quarters arose. Besides, prices of houses were rising at a rapid rate. So most families with moderate income found it difficult to buy new homes.

Since the end of the Great Depression in the US, the SFR sector has been growing. Today, it has become the fastest-growing sector of the US rental market, fuelled chiefly by economic factors. The factors that kept several potential home buyers at bay primarily included:

Heavy debts,
Short sales,
Home foreclosures,
A tight and competitive job market.

Many middle-class people could not afford new houses, but they earned enough to invest in a rental home. The changing attitude regarding homeownership was another factor that prompted the sector to grow at a steady pace. As reported by RealtyTrac, between 2006 and 2016, over 6.3 million foreclosures took place.

According to Walker & Dunlop, the growth of SFR may outpace the development of office, retail, hospitality, and, most importantly, the multifamily sector by the year 2022. With the continuously soaring demand for SFR, more and more investors are investing in it.

The investors who were prone to investing in office, retail, and so on are gradually going towards the SFR market. In comparison to the multifamily market, the SFR market is estimated at $3.4 trillion.

Recent Trends In The Multifamily Market

According to reports, the strength of the multifamily market increased to a considerable extent in Q2 in the U.S. market. There was a quarterly absorption of about 179,400 units in the multifamily market.

The overall rate of vacancy rate in this sector witnessed a downward trend. It decreased by 70 basis points (bps) to a healthy 4.0% in Q2. At the same time, the average rent rose by 3.5% from Q1. It is the second quarterly increase to be reported since Q1 2020.

The levels of construction continued to be fairly high. About 65,600 units were added in Q2. This brought up the year-to-date total to 117,900. The new supply was outpaced by net absorption of 197,300 units in H1. The investment volume in the multifamily segment rose by 34% quarter-over-quarter in Q2 to $52.7 billion. Despite all these trends, it seems SFR construction will soon outpace multifamily construction.