Numerous Factors Are Poised to Shape the 2020 Apartment Market
It’s hard to imagine how The Teens decade could have played out better for multifamily owners and operators. Vacancy rates plunged while rents reached historic highs.
Now, as a new year and a new decade begin, the outlook for the apartment industry remains strong, even if the market is expected to continue to moderate somewhat.
According to CBRE’s 2020 forecast, the national apartment vacancy rate will increase by 20 basis points over the new year, reaching 4.5 percent. That’s still below the long-term average rate of 5.1 percent. Meanwhile, overall rent growth will slow somewhat to 2.4 percent. Again, that’s just a tick below the historical average of 2.6 percent.
Given the solid state of the industry, it’s not surprising that apartment companies themselves are in a happy state of mind. According to the National Multifamily Housing Council’s most recent quarterly survey of its members, the Market Tightness Index was 54. A reading above 50 indicates that, on balance, apartment markets around the country are getting tighter, while a number below 50 means they are getting looser.
The indexes measuring the availability of equity and debt also were above 50, indicating both types of financing were more available than in the preceding quarter.
With all that being said, there are numerous factors in play that could impact the apartment market for better or worse in the year ahead. Here are three things to keep an eye on in 2020:
1) Rent control legislation. As the issue of housing affordability continues to rise in prominence, more states and local governments are either passing or considering rent control laws. New York, California and Oregon are some of the jurisdictions that implemented such legislation last year.
According to NMHC’s most recent quarterly member survey, 58 percent of respondents said they operate in areas that have either recently imposed rent control or are seriously considering doing so. Of those respondents, 34 percent said they have already cut back on investment or development, while another 49 percent said they are considering doing so in the near future.
2) The 2020 election. With control of the White House and Congress up for grabs this fall, investors could, in theory, grow skittish about sinking money into new developments or acquisitions until they have a better sense of what federal tax policy and fiscal legislation is bound to look like when all is said and done.
3) The economy. Job growth and household formation are the lifeblood of apartment demand.
We’re in an era of historically low unemployment rates and, generally speaking, multifamily experts seem to be at least somewhat optimistic about the employment market and overall economy in 2020.
“U.S. GDP growth will slow notably next year as various issues create higher levels of uncertainty, including the ongoing U.S.-China trade conflict, slowing global growth and a presidential election,” says CBRE’s 2020 forecast. “Barring any unforeseen risks, we assess that a recession will be avoided, thanks in large part to the stimulatory effects of the Fed’s rate cuts in 2019. Slow growth will continue in 2020, broadly supporting already strong property market fundamentals.”
At next month’s Multifamily Innovation Conference – Atlanta (MICA), we will take a very close look at how a broad array of economic and demographic trends could impact the apartment market in 2020 and beyond.
In the “Demographics, Politics and Trends” session (Thursday, Feb. 6, from 1:30 p.m. to 2:20 p.m.), panelists will examine what factors like the presidential election, the rise of the remote worker, stagnant wage growth and rent control laws mean for those who invest in and operate apartment communities.
Please join us on February 5 - 6 for MICA 2020. Register now and be a part of this important session.