MPF Research’s latest interactive webcast highlighted U.S. apartment market performance and explored the relationship of single-family and multifamily housing. The live event was hosted by RealPage Chief Economist Greg Willett, MPF Research Vice President Jay Parsons and special guest John Burns of John Burns Real Estate Consulting.
The initial discussion unfolded around a snapshot of the current apartment market. Answering the recurring question of whether the market is cooling, Parsons said rent growth continues to come in below 2015 levels but remains well above long-term norms.
“In October, new lease rent trade-out measured about 3%. That means if I moved out of a unit and you moved in, you paid, on average, about 3% more than I did for the exact same unit,” Parsons detailed, adding that figure reached 3.8% last year.
The market, Willett said, is normalizing from unsustainable numbers seen throughout the current cycle, characterized by unprecedented strength. The surprise, he said, is strong renewal pricing power.
“Renters who stayed put when their leases expired in October signed up for rent bumps of 5%,” Willett said. “Current renewal lease price growth matches the size of the bump seen a year ago. It’s about 50 basis points ahead of the growth posted in previous Octobers in the current cycle.”
The conversation’s focus was widened with the address of rent and revenue trends for new leases. Parsons explained both differ materially by market segment, product niche and geography.
“Whereas in the last few years, pretty much everything in the apartment sector was gold, you do see a ton more variation today,” Parsons said.
The point was evidenced by a year-over-year revenue growth range of -8% to +15% among the approximately 1,000 submarkets tracked by MPF Research.
The presence of such mixed results is increasingly common. Willett underlined performance variations among property types.
“More headwinds are emerging for Class A properties, particularly the ones in urban core settings,” he said. “On the other hand, there’s still lots of performance momentum among Class B projects, especially the ones in high-growth suburbs. And Class C communities? Some are continuing to do very, very well, but others seem to be experiencing some constraints when it comes to the ability of residents to afford additional big price increases.”
Capping the market update, the hosts noted a slight net drop in new lease application volumes. While Parsons said the decline could signal that new construction is sapping demand from the existing marketplace, real concern is not yet warranted, he said. Willett added that normalization is responsible.
Myth Busters: Single-family vs. Multifamily
In the webcast’s headlining discussion, Parsons and Willett debunked the top myths surrounding the relationship between apartments and single-family homes. The myths revolved around both housing markets being direct competitors. In reality, Parsons said, strength in the single-family market actually benefits the apartment market.
Q&A with John Burns
In a Q&A session, John Burns of John Burns Real Estate Consulting joined the webcast to discuss the future of housing, especially as it relates to the balance and demographics of single-family and multifamily.
Looking forward a decade, Burns predicts that there will be an additional 16 million homeowners and 7 million renters. Those figures should cause construction to grow 6% to 8% per year. That level of development could prove costly, as Burns noted regulations at every level have made housing really expensive.
Development is also likely to encounter a demographic impact. A generational shift, Burns said, has made people less likely to commute. Consequently, more builders are taking risks with construction in outlying areas.
He suggested industry insight should become more granular, and stop addressing millennials as a solid unit. The youngest millennials, Burns said, have different housing preferences and are more financially conservative than those in their mid-30s.
To watch the full Q&A session with Burns, register and view the free webcast on demand.