If there's one industry that benefited from the housing market's collapse in 2008, it is the apartment rental business. Millions of homeowners across the country lost their homes due to foreclosure and were forced to move into an apartment. Many more wanted to become homeowners but couldn’t – thanks to lenders who introduced stricter standards, meaning many renters who would have qualified for a home loan during the housing boom were declined when they applied in the years that followed. Even more still were afraid to buy a home when the market was in such turmoil.
The result? A higher demand for rented housing.
Apartment complex owners recognized this and raised their prices! In some cities, the average rent is at an all-time high. Now that the housing market is starting to recover, many tenants are realizing they can buy a home and have a mortgage payment that is actually cheaper the monthly rent they are paying to their landlord.
So, does this worry apartment developers?
Apparently not! Not only are rent prices staying right where they are, developers are moving forward with the construction of new units. During the National Association of Home Builders (NAHB) annual meeting in Las Vegas last week, leaders from the organization told the Dallas Morning News that, if anything, there aren't enough apartments being built. “We are building a lot of apartments but not nearly enough to meet the demand,” said Sharon Dworkin Bell, a senior vice president with the NAHB. “We have strong demand that is getting stronger.”
So if homeownership is increasing, why is the number of apartment construction projects also on the rise?
The answer – consumer credit. During the recession, many young adults either lived with their parents or shared an apartment with another young working adult. Now that the housing market is recovering, apartment tenants with good credit scores are opting to purchase a home. But tenants who do not have the income level or credit score to qualify for a home loan are moving out of the apartment they shared with a roommate and into another apartment by themselves. So, the surge in new homeowners has had its effect on the apartment industry, but not as severely as one might expect. In fact, economists at the NAHB think there may be an apartment shortage in the years to come! Nationwide apartment starts last year were double what they were when the market hit rock bottom in 2009. But they were still more than 100,000 units below the 350,000 mark that economists say the country needs built each year to maintain a balanced market.“For 2013, I expect to see 299,000 multifamily units started, which will be a 22% improvement,” said NAHB chief economist David Crowe.
So, why the shortage of new units?
Developers say lenders are being stingy with loan approvals, and the cost of land is increasing, so most of the new apartments being built are high-end properties located in urban areas. While this may not seem like a problem now, some developers and economists worry about the next decade. If the apartment industry doesn't start to build enough units to meet consumer needs, there could be a millions of potential renters who will have to live elsewhere due to a lack of affordable apartments in their communities.
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