Buried in this week’s government report on new home construction, is a sharp jump in multifamily apartment building construction of 5 units or more, something real estate investors should be watching.
Construction of apartment buildings of this size jumped 33%, the highest level since January of 2006, according to the Commerce Department report. Permits for new construction also increased.
More and more Americans are renting apartments for several reasons. Credit is tight, jobs are scarce, and the younger generation prefers the flexibility of renting instead of buying a traditional single-family home.
The good news for investors is that rental rates are expected to continue to increase according to reports.
The housing starts report can be volatile and subject to large changes according to MarketWatch.
Big gains in apartment construction are less bullish for economic growth than a comparable rise in single-family construction, Diane Swonk, chief economist for Mesirow Financial told the Wall Street Journal, because single-family housing has a bigger multiplier effect for both consumer spending and job growth.
“We will take what economic activity we can get, but our housing market model was designed in the U.S. to build a lot of single-family homes for owners, not multifamily homes for renters,” Swonk wrote.
The renter nation trend, which real estate investors are watching closely, is part a result of the economy and part the result of demographics. There are more younger people and they tend to like to rent apartments. Read the Forbes piece on this trend here.
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