U.S. Multifamily Housing Sector to Continue to Cool in 2017

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According to a group of panelists at the recent National Association of Home Builders International Builders' Show in Orlando last week, the U.S. multifamily housing market will further be tapping on the brakes in 2017.

NAHB Senior Economist Robert Denk explained how the "extremely volatile" multifamily starts data nonetheless shows the sector "slowing down from recent historical highs in response to a more sustainable demand."

Market indicators including vacancy rates and inflation in rents point to still-robust production, but a cooling in the market place after the sizzling pace of recovery. Denk expects multifamily production to drift down modestly from its 2015 peak of 395,000 units.

"The demand for affordable rentals already outstrips supply, and that imbalance will only get worse for a couple of reasons: First, demand will increase as the millennial generation fully enters the housing market, and second, those aging baby boomers with minimal savings will be looking for housing they can afford on a budget that depends primarily on Social Security," said Steven E. Lawson, president of The Lawson Companies in Virginia Beach, Va., whose firm builds both affordable and market-rate housing. "To make matters worse, affordable production will undoubtedly be weighed down by rising interest rates and falling tax credit prices."

Lawson also discussed current design and amenity trends in the sector, including smaller units and walkable communities. Successful approaches may include access to larger patios and balconies, and choosing a location that allows residents to take advantage of neighborhood perks--such as nearby coffee shops, grocery stores, medical offices, restaurants, parks and public transportation--as amenities, instead of building larger activity centers.