Economists: More Condos Needed

The demand for rental apartments remains high as few renters are being tempted to leave apartments to take on homeownership. But industry insiders expect that to soon change, and they believe entry-level condos will be key to pressing more renters to make that leap.

Read more: Condo Builders Put on Brakes Fearing Lawsuits

“We expect homeownership to return to favor, likely in the form of entry-level condos that offer the same amenities many urban apartment dwellers prefer,” says John Affleck, a research strategist for the CoStar Group.

Apartment market experts are looking for signs of when that will happen. For example, they’re taking note of how many residents are renewing their leases when their terms expire. The rate is currently at 52 percent.

“That figure has been trending upward year-over-year ever since the middle of 2012,” says Greg Willett, chief economist for Real Page, Inc. and MPF Research. “Apartment residents are moving around less than they used to, so apartment owners and operators don’t have to lease as many units to keep occupancy stable.”

A shortage of homes for-sale, along with higher interest rates, likely will prolong the cycle for renter demand, says Affleck.

“Developers have remained focused on for-rent properties, and have yet to switch to condos or single-family for-sale homes,” Affleck says.

Ninety-two percent of the multifamily housing starts in the third quarter were all being built as rental apartments, according to the National Association of Home Builders.

“I expect additional growth in the condo market,” says NAHB chief economist Robert Dietz.

In the second quarter of 2016, condominium completions totaled 2,800, which is basically unchanged from the second quarter of 2015. That said, the condo absorption rate is up slightly from 63 percent in the second quarter of 2015 to 66 percent in the second quarter of 2016, according to NAHB.

“The for-sale market and the single-family rental space will start posing more of a challenge to apartment operators as we move forward,” says Jay Denton, senior vice president of analytics for Axiometrics.

Source: “Are Apartment Renters Ready to Own?” National Real Estate Investor (Jan. 3, 2017)

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