It's easy to feel a little wishy-washy about supplying multifamily housing. While nearly every industry economist expects that segment of the housing market to grow along with the single-family sector for the next decade, many dealers still may be wary because the trend for multis appears to be headed toward high-density urban infill projects, where buildings over four stories generally require materials that even large-scale LBM dealers do not commonly stock.
But soaring steel-framed high-rises are just a snapshot of the industry, and a fuzzy one at that. Dealers who sharpen their focus on the multifamily market can find sales and support opportunities even in mid- and high-rise projects in their city's downtown core, as well as within the steady (if less dynamic) growth of wood-framed low- and mid-rise apartments in the suburbs.
Driving Factors Bozzuto's enthusiasm, echoed by his peers and housing industry analysts, comes from an understanding of the demographic, geographic, and economic indicators that are converging to drive the multi-family market to numbers not seen since the mid-'80s. According to “America's Housing Forecast,” a 2003 report issued by the Homeownership Alliance, a consortium of economists, multifamily housing will produce an estimated average of 400,000 annual starts through 2013, representing 20 percent of the nation's annual total. That's a 25 percent boost from a nearly 300,000-unit annual average during the past 10 years.
Specific to demographic trends, multi-family developers and builders foresee an impact from both retiring Baby Boomers and their kids, labeled Echo Boomers, which each represent 27.5 percent of the nation's population, or about 80 million people. The number of renters in their mid-30s is shrinking as the predominant multifamily dweller demographic. “There's always been diversity [among multifamily renters and buyers], but it will be even more so in the future,” says Bob Paley, senior development director for AvalonBay Communities' New York City office, one of several branches of the Alexandria, Va.–based developer.
Paley and other multifamily developers also rely on “renters by choice,” a diverse group of folks who could buy homes, but prefer to rent. “These are people in transition,” says Paley, including empty-nesters, relocated professionals, and graduate students all more attracted to one-year leases than 30-year mortgages. “Renting makes more sense for their lifestyles.”
Despite a solid base of renters by choice, new multifamily rental development is lagging behind for-sale condos and single-family homes as fringe renters take advantage of low mortgage interest rates to get into the buyer's market. “It's no secret that the apartment industry has been hit hard and drained of renters,” says Bozzuto.
To combat the trend, Bozzuto is focusing his new rental projects in previously passed-over infill sites near established employment centers and relying on wood-frame construction instead of steel and concrete to keep costs and rents reasonable in order to keep units leased. “The lower land price [for an infill site] and the significant cost savings of using wood allows us to offer rents that the market will support,” he says, signaling an opportunity for LBM dealers to get on the multi-family bandwagon.
Meanwhile, geographic trends toward increased urban and close-in suburban development also are expected to support the uptick in multifamily production. “Most urban jurisdictions recognize that they need housing to keep their neighborhood vital,” says Bozzuto.
Small-lot infill rental and for-sale projects, whether for amenity-seeking retirees or club-hopping college grads, breed higher-density housing—in other words, buildings that climb five or more (often much more) stories into the sky.
Though still only about one-fifth of the total market, the percentage of multifamily projects with four or more floors has tripled at the expense of low-rise buildings during the last decade. “With increasing limitations in land supply, there's a greater push to reclaim under-utilized, close-in sites and build high-density housing,” says Bozzuto.
For McNaulty Lofts, an 85-unit condominium project near downtown St. Petersburg, Fla., for instance, local developer Echelon Communities (which also builds rental and for-sale multifamily in Orlando, Fla., Memphis, Tenn., and Dallas) specified long-span, staggered steel trusses and hollow-core planks filled with 2-inch concrete pads for the 13.5-story building, complete with a precast brick exterior. The company relied on its steel erector to supply both the labor and materials for the job.
But for Echelon at Bay Isle Key, a garden-style project located on 20 acres a bit farther out of St. Petersburg's urban core but near its Gateway Business District, the developer chose a wood-framed system. “The choice of material depends on the project type,” says Tim Tinsley, president and CEO of Echelon Communities. The company just completed 213 units in phase two of the project, relying on its general contractor to negotiate the lumber and related framing materials purchase.
Economics are the third factor driving multifamily development. While low mortgage rates and a slow job market recovery have stymied new rental projects overall, causing a net loss of 800,000 units since 1992, markets showing strong economic growth, including those in Florida, Southern California, Arizona, and Nevada, are on the rental rebound. Not coincidentally, many of those locations have ties to the defense industry, which has aided their recovery with job and income growth in recent years.
As the national economy improves, so does the outlook for rentals. A more diverse age distribution combined with minority and foreign-born residents is expected to help revitalize multifamily rentals, while other economic incentives—including a greater ability among federal housing agencies to finance and insure affordable multifamily projects, especially in high-cost markets—are in place or being pushed in the industry to reverse the tide.
