In order to meet the projected demand for housing in the U.S. 4.3 million apartments must be added by 2035, according to a new report from the National Apartment Association and the National Multifamily Housing Council. The projected total includes 600,000 units that are needed just to bring the 5+ rentals (buildings with five apartments or more) back to equilibrium
According to the 193-page report, the 600,000 apartment deficit is a direct result of the lack of construction that occurred in the wake of the 2008 financial crisis. That deficit has since snowballed into a much bigger problem. Due to the underproduction of housing, apartment rents have risen, and affordable units have dwindled, 4.7 million apartments with rents of $1,000 a month or less have vanished from the market.
Apartment demand continues to be driven by population growth, young workers leaving their parents’ homes, older people downsizing from homeownership, and immigration. The report speculates that demographic growth will push demand for another 3.7 million new 5+ rental properties through 2035, or an average pace of about 266,000 apartments per year. But in addition to newly constructed units resulting from net new demand, a sizable amount of the new rental housing builds will also need to replace aging buildings. Over half of the 5+ rental stock was constructed prior to 1980 in 14 major U.S. cities.
The study does point out some regional variations. Texas, Florida, and California will account for more than 1.5 million new housing units, or 40 percent of net new demand, through the year 2035. However, secondary cities typically take the lead in terms of percentage growth. It is anticipated that growth in Boise, Austin, Las Vegas, Raleigh, Orlando, and Phoenix will be at least twice as fast as the national average.
The dynamics of the multifamily market have changed. Population trends, migration patterns, aging infrastructure, and underbuilding have all culminated into a full-on housing crisis. The lack of affordable housing is presenting an opportunity for multifamily developers as a massive supply of homes are and will continue to be needed in the United States.