Traditionally, investors favored multifamily properties because housing is a basic need, no matter the economic climate. Historically multifamily properties have been more resilient compared with other types of commercial assets. Even in down markets, individuals and families prioritize paying their rent before anything else to ensure that they have a roof over their heads.
In any event, the economic fallout of COVID-19 has definitely impacted the multifamily housing industry. To date, over 30 million Americans have lost their jobs. Most of which are not expected to return after the pandemic subsides. The health crisis, coupled with unemployment, construction disruptions, and evictions moratoriums, have all impacted the multifamily real estate industry in one way or another.
COVID-19 has changed the way that people look at housing altogether. With more people spending more than half of their time at home, families have had to explore ways to make their homes multifunctional. This means that the multifamily real estate industry will have to evolve in several ways to continue to serve residents and homeowners. Recent graduates with high debt may choose to rent longer before committing to a mortgage.
Interest in Suburban Living Has Substantially Increased
The COVID-19 pandemic has likewise shifted where and how people want to live. Interesting, the co-living trend, which never took off, will probably be an afterthought after the COVID-19 pandemic subsides. Specifically, more families are rethinking cramped apartment living and moving deeper into spread-out suburban areas. However, keep in mind that this trend was increasing pre-COVID-19, mainly because of nearby cities’ affordability.
Still, since more individuals will be working from home for the foreseeable future, suburban areas are more attractive than they were in the past. At the same time, more flexible housing will also be in demand. Specifically, as the economic recovery remains uncertain, some people may be holding off on homeownership for a while.
Keep in mind that America was already experiencing a housing shortage before the COVID-19 pandemic hit the country. The health crisis only exacerbated the issue. However, because of the pandemic, many areas had to pause construction for a couple of months. Notably, the U.S. receives approximately 30% of its building materials from China. As such, due to COVID-19, building material supply chains are experiencing a difficult time. The health crisis may drive a rise in domestic building materials supplies due to suppliers’ inability to export building materials to desired locations. Imports will likewise be affected. Hence the real estate development industry can expect an unpredictable mix of price fluctuations, at least in the short term. In the long run, materials prices could increase due to supply chain bottlenecks.
As supply chain disruptions continue and materials cost increase, suburban living may be more expensive, at least in the short-term, until things stabilize.
The Fate of Multifamily Housing Moving Forward
While there is still a considerable level of uncertainty regarding the job market, debt forbearances, and evictions, overall multifamily asset performance has been relatively stable.
Investors thinking about or already invested in multifamily housing should be at ease, knowing that lenders have taken steps to offer relief to property owners who need it. The Biden administration is expected to provide more government stimulus packages as a result of the Delta variant, and with an extended period of low-interest rates, the outlook for the multifamily housing industry appears promising.
While occupancy levels will probably dip slightly following the pandemic, most experts agree that this is only temporary. The current demographic trends favor continuous multifamily demand. Moreover, since many employers will be operating remotely for the foreseeable future, renting versus owning remains desirable.
To that point, the data suggest that both Class A and B properties have weathered the COVID-19 pandemic particularly well. Residents residing in luxury or semi-luxury apartment buildings are typically employees who are able to work remotely.
Also, consider that fewer people can afford homeownership due to job losses, salary cuts, and stricter mortgage lending criteria. Therefore, tenants who may have been aspiring for homeownership will remain renters, at least until the economy picks back up.
Overall, even as retailers continue to downsize or close during the down market, people will always need a place to live. Historically, demand for multifamily housing has remained steady no matter the economic cycle; the current COVID-19 driven down market is no exception. As the economy continues to recover in 2021, investors should feel good about their multifamily investments over other types of investment options.
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