Has the Multifamily Residential Market Matured?

The multifamily construction sector has been growing rapidly for six years. But is the market finally maturing? Maybe, maybe not. But one thing seems certain—it won’t be dying off any time soon.

Dodge Data & Analytics chief economist Robert Murray discussed the topic during last week’s 2016 Dodge Outlook Conference in Washington, D.C., upon the release of the company’s new outlook forecast.

Sunset in Chicago with skyscrapers
Sunset in Chicago with skyscrapers

In terms of dollar amount of construction starts, the multifamily sector saw year-over increases of 23 to 37 percent each year from 2010 to 2014, and according to Dodge’s projections, multifamily housing will have gotten a 25-percent boost in 2015 when the year is over.

With the single-family housing market finally catching some momentum, the multifamily sector will be hard-pressed to sustain its steep angle of incline, though Dodge projects it will still grow another 7 percent, money-wise, in 2016.

On number-of-units basis, rates of increase in starts have gone from a 39-percent jump in 2011 to a 14-percent rise in 2014. Starts are projected to increase 13 percent in 2015 and 5 percent in 2016.

Murray expects demographic trends will continue to be favorable to multifamily housing, mostly due to the millennial generation’s impact on the housing market. He said that younger members of the generation forming households for the first time are more likely to rent than own. Meanwhile, the older members of the generation—entering what used to be prime first-time buyer years—have not become homeowners at the same rate of proceeding generations.

“Some millennials have remained renters by choice because they have delayed marriage and children, want to be able to relocate more easily, or prefer living in urban areas where housing and other costs are higher,” Murray wrote in the report. “For others, however, homeownership is simply not an option—with money often the key factor keeping them from buying a home.”

From a geographical standpoint, the New York City metropolitan area continues to dominate the multifamily market.So far in 2015, 10 of the U.S.’s 12-largest multifamily project starts are in the area. New York, which already led in the category last year by a longshot, has seen more than $16 billion worth of multifamily construction starts through the first nine months of 2015. The second-highest metropolitan area in the sector, by the same measure, is Miami at under $4 billion.

According to the BuildShare database, Extell Development Co. has been the biggest builder in the New York metropolitan region over the past two years.

The fall of the single-family market and the rise of the multifamily market was primarily influenced by the economic crisis of 2009. However, with improved economic conditions  and despite the demographic trends, the single-family market is on its way back, according to Dodge.

Murray said single-family will finally “take the reins” next year in leading the residential construction market, as it is projected see 11-percent growth in 2015 on a unit basis, followed by 17-percent growth next year.