Throughout history, homebuilding trends have constantly shifted as the population’s demographic changed; think back to the boom of apartments and multi-family units in New York City to accommodate European immigrants in the 1920’s.
Well, the latest trend in home construction also involves building apartments and multi-family units as opposed to single-family houses. MSN Real Estate recently reported that apartment construction is at its highest level in four decades, with California seeing more than its share of new multi-family units.
Millenials and their Effects
Millenials were forced by the recent downshift in the economy to remain home with their parents longer than young adults in previous generations were. In recent months, these millenials have become increasingly eager to finally flee the nest.
Even so, buying a home is still out of reach for many of them, who are burdened with excessive student loan debt and may also be underemployed. Add to that the fact that lenders have tightened their standards somewhat, and it makes perfect sense that these individuals would be looking at apartments.
The millennial generation is also taking longer to marry and begin having children. Since the decision to start a family is often what spurs people to buy their first home, more apartments are now being needed over the next few years in order to fill the gap. Many in this age group claim they now see themselves renting well into their 30s, which means there may not be a demand for new houses for five to ten more years.
Despite the biggest housing market crash since the Great Depression, the vacancy rate in a number of cities remains virtually unchanged since before the bust. This is due to a number of families moving in together to help make ends meet, coupled with properties that were kept off-market for one reason or another.
Some homes have been kept off the market because they are properties that are used only seasonally, while others are distressed houses in need of extensive repairs. Whatever the reason, the failure of some owners to list their real estate could force people to consider renting an apartment whenever the time does come for them to move.
In addition, the vacancy rate in coastal California has traditionally been very low due to a limited amount of available land to build on, which tends to keep people in their houses longer. That fact along with stricter building regulations means that more and more builders are choosing to construct apartments whenever they are planning a new project. Contractors are also hesitant to build homes whenever the vacancy rate is low, as they fear being unable to sell their properties once they are completed.
Another reason why apartment construction is booming is due to a lack of available housing units. Some cities such as San Francisco and Los Angeles have traditionally had housing shortages that haven’t eased up despite the Great Recession. Since less construction has taken place in recent years, the law of supply and demand has not reduced the housing need in many of California’s most prominent cities. In the early 2000s, construction on single-family homes primarily dominated the market, providing fewer apartment units for those who were coming of age.
Effect on the Economy
New housing statistics are some of the biggest factors that determine the strength of the economy. Last year, housing construction accounted for three percent of all economic growth, according to MSN Real Estate. That’s still lower than the all-time high number of between four and five percent, yet is still being seen as a positive sign of growth.
While that sign may be positive, it’s not as encouraging as it might be if new construction included more single-family homes instead of apartments. That’s because home sales create jobs in a number of other ways, such as the real estate agent who earns a commission and the mortgage broker who approves a loan. Homeowners also tend to provide more jobs to home improvement contractors as a whole as well.
Overall spending could also lag behind a bit whenever there are fewer homeowners. Many consumers base their economic health on factors such as the amount of equity in their homes, and tend to spend more money whenever that number increases. While that may slow economic growth, it would nonetheless mean that individuals would be in better financial health whenever they did decide to purchase, thereby reducing their odds of facing foreclosure.
What’s likely to happen is that there will be a shifting of jobs within certain sectors to accommodate the growing number of apartments. Real estate agents may find themselves acting as property managers rather than salespersons, and contractors might fill the role of maintenance workers rather than home repairers. Jobs would also be created for those who help “keep up” apartment complexes-for example, cleaning, lawn maintenance and landscaping.
The trend toward more apartments could also be short-term, since the millennial generation seems to be driving it. As this group eventually ages, their desire to obtain the American dream of home ownership is likely to be as strong as that of their ancestors was.