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Rental Apartments on the Mend as Condos Recede
Fueled by increased household demand for rental units and a depleted supply from the earlier conversion of rental apartment buildings to condominium ownership, the rental apartment market is on the rebound, with builder expectations for market-rate rental starts surging to 69.5, a nearly 18-point increase, in NAHB’s Multifamily Rental Market Index (MRMI) for the fourth quarter of 2006.
“We are forecasting that the rental and for-sale sectors of the multifamily market will rebalance during the next two years, with about one-third of multifamily starts representing condos and nearly two-thirds representing rentals by the end of 2007,” said David Seiders, NAHB’s chief economist. “Last year, the for-sale market had grown to represent nearly half of all multifamily starts, a record share, and a correction now is under way.”
Builders also are expecting a slightly higher level of low-rent starts as well, perhaps reflecting the improved congressional climate for funding affordable housing. The production level of subsidized apartments held steady throughout the recent housing boom.
The MRMI is on a scale from 0 to 100, with 50 generally indicating that the number of positive and negative responses is about the same.
The occupancy components of the MRMI are still strong — standing at 59.2 during the fourth quarter for luxury (Class A) apartments, 55.1 for moderately-priced (Class B) and 58.6 for lower-rent (Class C) apartments.
The occupancy components for better-quality apartments were down slightly on a year-over-year basis, possibly reflecting increases in supply, due to recent conversions to rental from the condo market. Respondents in the survey on which the index is based reported that their rental vacancy rates are up, rental units are remaining empty for longer periods of time and rents have dropped slightly since late 2005.
When asked about their expectations for rental occupancy over the next six months, multifamily builders and developers expressed optimism, posting MRMI index numbers of 68.4, 64.1, and 65.3 for Class A, Class B, and Class C apartments, respectively.
The volume of calls from prospective renters rose from a level of 54.0 in the fourth quarter of 2005 to 58.8 in the final three months of last year.
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.
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