The Multifamily Construction Comeback
In uncharted market conditions, multifamily construction seeks to rise again.
It absolutely must be tiring to hear about more ways the Covid-19 pandemic has affected lives and industries. The pandemic itself has been nothing short of a nightmare, but the damage done to the multifamily industry has been unprecedented, to say the least. Still, as a major pillar of the United States Economy, we have persisted, and we will all survive this thing one way or another.
If you still need the reassurance, however, you need to look no further than new multifamily construction. Construction on new multifamily projects came to quite a screeching halt back in March of last year thanks to pandemic restrictions, market uncertainty, and dare I say it, fear. When legislative restrictions weren’t holding up a project, it was a lack of a labor force. If it wasn’t an issue with the labor force, it was the difficulty of acquiring building materials through the heavily-impacted supply chains both foreign and domestic.
Of course, at the time of writing this, more and more of these delayed projects have slowly begun to resume progress. Sure, we’re only a month off from it being a full year of minimal activity, but simply having the wheels in motion again is the rally we all needed. As the industry rises out of the letdown that was 2020, we are starting to see new life breathed into multifamily investing as a whole.
Interest rates have been generously on the low side thanks to the Federal Reserve’s attempts to stimulate the market. The pandemic itself has caused a shift in the demands of many renters, who are making more conscious decisions to inhabit less expensive markets. The affordable housing market is absolutely growing, which may not exactly be a good thing overall in terms of the well-being of the American people, but great for developers and investors alike.
That’s where new construction begins to shine. Investors may have found the silver lining in an otherwise uncertain market, as investing in new construction removes the heavy reliance most multifamily financing places on income. This, of course, doesn’t remove the existing risks typically associated with multifamily construction financing, but it does make for a solid investment given the current circumstances.
The data may not be smoking-gun evidence of a huge multifamily construction rebound, but the numbers do look good, to say the least. The rate of annual completions of multifamily properties rose over 30% at the end of last year compared to where it was sitting back in April, just one month into covid-restrictions. On that note, new permits for multifamily construction saw a 19% rise in December from the April figures.
In-market, it looks likes the right obstacles are being removed for some new construction projects and investments to be made, but the world is not exactly out of the woods just yet in regards to covid and its impacts. The lumber industry, for example, has suffered so severely that prices for lumber were doubled back in August. While they aren’t as high now, they are still much higher than pre-pandemic prices, causing the cost-per-unit to be a point of contention for many developers and investors of new construction.
Even less surprising is the repercussions of the heightened lumber pricing and general state of the housing market in terms of demand. As it turns out, homeownership has become even more expensive than before, with new home prices hitting record highs in 2020. Luckily for investors, that means that the attention of more than half of the average workers in the United States (55%) has now turned to rental properties.
The significant interest in renting has created a demand for not only multifamily rental units but single-family rental properties as well. The market was never particularly inundated with these properties to begin with, so many investors and developers are deciding it’s time to step up to the proverbial plate. For anyone interested in securing or learning more about construction financing, don’t hesitate to reach out!