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Former U.S. Department of Housing and Urban Development Secretary Henry Cisneros, now the executive chairman of an institutional investment firm that finances and builds workforce housing, recently told the nation’s real estate editors that the future looks promising for multifamily housing.
Speaking recently in Austin, Texas, at a conference held by the National Association of Real Estate Editors, Cisneros said the consensus among industry leaders is that there is pent-up demand for apartments from people who want to form new households but cannot yet afford to take that step.
He noted that very little apartment stock has been built in the last few years and said the nation’s declining homeownership rate will contribute to demand for multifamily rental housing.
The homeownership rate peaked at almost 70% several years ago but is now nearer to 65%, said Cisneros, who headed HUD from 1993 to 1997. Every 1% decline in the homeownership rate translates into an additional 1.5 million households that need a place to live, he said.
He added that Trammell Crow Residential, a leading multifamily builder and developer, built “zero apartments in 2009.”
He also quoted Ron Terwilliger, the former CEO of Trammell Crow and the former chair of NAHB’s Multifamily Leadership Board, who said that “as occupancy rates begin to rise in 2010, rent levels should stabilize. Thereafter, record-setting rental demand at a time of zero net completions should drive effective rents sharply higher — up about 6% in 2011 and 9% in 2012.”
Cisneros noted a general “sense of optimism” concerning multifamily housing. He added that CityView, the firm he now heads, sees opportunities particularly in gateway cities with large concentrations of immigrants, especially those where the work force is growing and where there is currently little construction of workforce housing.
Cisneros added that he sees some improvement in single-family housing but said the sector still “is not as robust as it should be.” He cited credit restrictions, high employment levels and current and expected foreclosures as the factors that are holding back single-family housing.
He also pointed out that investors are considering the hotel sector because it also has seen little new construction of late, and that there will be demand in the downtown core of major urban areas.
He said that many investors, such as pension funds, are looking at investing in infrastructure: ports, transportation terminals and hubs, toll roads, communications systems, smart electrical grid projects and the like.
While not real estate, such investment will support residential development, Cisneros said.