By Jacob Bourne
Entering the seventh straight year of growth in the U.S. economy, researchers at Marcus & Millichap offer their clients a promising investment outlook for the nation’s 2017 multifamily housing market. This favorable forecast is tempered by an added qualification that the new political landscape marked by anticipated sweeping shifts in far-reaching economic policy warrants sustained vigilance. In the 2017 U.S. Multifamily Investment Forecast report, researchers point to predictions of an increase in 2 to 2.5 million jobs, jump in consumer spending by 2.5 percent, GDP growth and a rock-bottom average unemployment rate, as key indicators of this economic strength that will sustain apartment growth in many U.S. urban centers, given the widespread low supply of single family homes.
“We haven’t seen this level of housing demand since the 1980s when the Baby Boomers were coming of age,” said John Chang, first vice president research services, Marcus & Millichap. “Now with the influx of Millennials we’re seeing it again. It’s a major driver of multifamily rental growth.”
Seattle-Tacoma exemplifies high growth trends climbing to the position of second top performing multifamily market in the nation, just behind Los Angeles. With the fastest growing employment rate, twice that of the national average, housing demand continues with intensity pushing rents up six percent. The construction pipeline is slightly pulled back from last year with 13,200 units to be delivered in 2017, which will likely cause an increase in the average vacancy rate to 4.2 percent. The Region continues to attract Bay Area tech companies and talent seeking greater affordability, furthering interest shown by foreign and domestic investors.
“Seattle is a market where we’ve seen steady construction momentum that will push vacancy rates up, but it’s more reflected in Class A apartments in the urban core,” explained Chang. “In Class B and C assets, which are traditional workforce housing, these vacancy rates continue to tighten. Overall Seattle’s vacancy rate is rising — from 3.2 percent last year to 4.2 percent in 2017 — reflected in the large number of units entering the market, but those rates are still really low. Job growth will continue to support rental housing and ultimately, increased housing will boost supply and help maintain a more stable housing market. It will take some time to absorb the units, but from a housing need standpoint, this is still a good thing.”
The report cites conservatism on the part of lenders as an element that will help prevent overbuilding. The Dodd-Frank Act became federal law in 2010 in the aftermath of the Great Recession, and among other provisions it marks construction as a higher risk investment category thereby requiring banks to reduce the outflow of capital to developers. Although the Act could be overturned by the current administration, rolling back of the regulatory effects would be a lengthy process. Presently, some researchers view the existence of Dodd-Frank as a positive in the current climate as a means of controlling the growth cycle.
Economic strength is still evident in many cities around the country especially in metros hosting tech industry epicenters like the Bay Area, Seattle, Los Angeles and Salt Lake City. While there is no evidence of an approaching downturn, Chang stressed that there are numerous policies that could come from Congress or the President, which could either extend the growth cycle or potentially cause it to derail. Policies currently being discussed concerning investment in infrastructure, greater restrictions on immigration and a protectionist trade stance could have a dramatic impact on the course of the economy depending on outcomes.