Across the nation, events of the past two years have brought challenges to the multifamily sector that few could have predicted. Extraordinary public health threats from Covid 19, aggressive governmental responses to aid the economy, societal unrest over discrimination and inequality, and rampant workforce and supply chain upheavals all brought great uncertainty to a rental housing sector that was fundamentally solid –and strengthening– through 2019.
It’s easy to think that the multifamily sector has been so battered that the outlook is hazy and uncertain. But many underlying economic and demographic trends suggest that the path is quite clear. As much as ever, continued investments in multifamily housing must happen to meet new patterns of demand, upgrade and replace many obsolete units, spur economic growth, and ease pricing pressure across the entire housing market due to a lack of new supply.
An Indispensable Link in the Chain
Rental housing is a vital component of the entire housing system, affecting people of all ages and income levels. Millennials –the largest age cohort in the country at 72+ million– become independent households with their first apartment. Workers in their mid-careers transition from place-to-place and job-to-job more easily by renting their housing. Baby boomers –10,000 of whom turn age 65 each day across America– frequently turn to rental housing as a means for gaining a safer, lower-maintenance, more affordable way of living. Without new rental construction and continued investment to maintain and upgrade our current rental stock, people in all walks of life suffer.
New patterns of living or new ways to serve people have also created demand for new types of rental housing. One of the fastest-growing market segments is for single-family style homes built exclusively for renting, a category known as “build-for-rent” (BFR). BFR gives family households in particular a flexible option to live in detached housing with a yard without the constraints of ownership and maintenance. Among older adults, new “active senior” or “55+” rental communities offer high-amenity living in settings that are quieter than rental developments for general-occupancy. And within the affordable multifamily sector, developments targeted at specific populations are greatly expanding in number, helping such vulnerable groups as young adults aging out of foster care, homeless veterans, and formerly incarcerated individuals seeking to reintegrate into society. All of these examples demonstrate the continual need for investment in the multifamily housing stock to meet the changing needs and wants of the country.
An Invaluable Asset That Needs Continued Investment
Across Minnesota, much of the rental stock is older and in need of repair and/or upgrading. As of 2019, 39% of the rental stock in the State was at least 50 years old (built prior 1970). Housing in Greater Minnesota particularly suffers from obsolescence and disrepair. Compounding this problem, construction of new rental units over the last decade in Minnesota was virtually identical to the number of new renter households, indicating that there was no surplus construction to replace units that should no longer be in service due to poor condition or obsolescence. Considering nothing else, substantial investment will need to occur in this decade to maintain the condition of the rental stock across the State.
Investing in One is Investing in All
Whenever a new rental unit is built, the whole housing system benefits. New multifamily units at higher prices help free-up existing units at lower prices as renters “move up,” or they help an owner household move to a rental unit, freeing-up the home left behind for a new family. New affordable rental units create opportunities for families who are cost-burdened to gain a home that better fits their budget, leaving more to spend in other consumer categories. New rental housing in any location gives households the chance to move to an area that might offer a preferred school system, proximity to a job, or valued lifestyle amenities.
And the economic benefits of housing investment far outweigh the actual dollars put into the units. New multifamily construction in any price category represents hundreds of thousands of dollars of local investment for each unit built, plus significant increases in local taxes paid and consumer spending. According to the National Association of Homebuilders, fixed housing investment plus housing services spending contributed nearly $3.9 trillion to the U.S. economy in 2021, almost 17% of GDP.
Investment in housing in general, and multifamily housing in particular, offers enormous benefits to individual households, local communities, and the larger economy. Across Minnesota, we cannot afford to fall short in our duty to continually provide new and better housing options for all.
Sources: Pew Research, Minnesota Housing Partnership, American Community Survey (U.S. Census), National Association of Homebuilders