News & Research Listing

Research, Research Reflections
2020 Apartment Housing Outlook

Slowing global growth and uncertainties surrounding trade wars and tariffs held businesses at bay in 2019 in terms of spending, but consumers stepped in to prop up economic activity. According to Moody’s Analytics, households have contributed approximately half a percentage point to GDP growth over the past year. The latest read from the December release of the University of Michigan’s Consumer Sentiment Survey showed an increase to 99.2, the highest level since May. The survey has averaged 97 for the past three years, which is the longest, sustained level of optimism since the 1990s.

The final jobs report of the year was a compelling one with the Bureau of Labor Statistics reporting the addition of 266,000 jobs in November, handily beating the prior monthly average of 167,000. Upward revisions were also made to the September and October employment counts while the unemployment rate returned to its 50-year low of 3.5 percent.

The recently released Outlook Survey from the National Association for Business Economics (NABE) revealed a consensus for slower growth, but no recession in 2020. It is worth noting that the survey was conducted prior to the November jobs report.

The outlook for commercial real estate is “moderately positive” for the next 18 months, to quote a recent Deloitte survey of U.S. commercial real estate executives. In terms of the apartment sector, respondents were neutral on occupancy levels and the cost of capital, but viewed rent growth, capital availability and transaction activity as somewhat favorable. 

Despite all the talk of impending recessions, stagnant business investment, trade wars and a volatile stock market, in 2019 the apartment industry was marked by higher occupancy rates amid relatively robust levels of new supply and rent growth exceeding long-term averages. Apartments remain a favored asset class for investors with volumes up 6.4 percent year-over-year through the third quarter and average price per unit growth flirting with 10 percent, based on data provided by Real Capital Analytics.

Monthly Census building permit data showed weakness at the beginning of the year, but have ramped up since July, averaging year-over-year increases exceeding 20 percent through October. At this rate, permits are poised to exceed last year’s levels.

Approximately 328,000 new units are needed in the U.S. each year just to keep up with demand. That figure has only been realized twice since the late 1980s, in 2017 (the peak year for completions) and 2018 and is on track to just make it in 2019, according to CoStar. Although some segments of the market may be approaching overbuilt status (luxury, urban core, specific submarkets), supply is still falling far short of demand in many areas across the country. In 2018 and 2019, absorption outstripped demand by an estimated 73,400 units and the current pipeline for 2020 shows fewer units coming on-line than 2019.

2020 housing start forecasts for multifamily properties range from 375,000-400,000, about on-par with 2019 estimates. Single-family starts are projected to post slight increases. The National Association of Realtors (NAR) reported less than four months’ worth of supply of existing single-family homes available for sale in October. Unless new construction of for-sale homes picks up significantly next year, low mortgage rates, which have fallen by more than 100 basis points over the past year, will not be enough to offset a simple lack of supply available to potential purchasers.


After trending steadily upwards for two and a half years, the homeownership rate dropped for two consecutive quarters this year before rising in the third quarter back to its Q4 2018 level of 64.8 percent. Census Bureau figures reveal that the largest increase in homeownership over the past year occurred among younger Gen X-ers aged 40 to 44, a 2.6 percentage point shift. The greatest decrease this past year was among mostly older Millennials (35 to 39 years of age), which dropped a full percentage point. Moody’s Analytics’ forecast keeps the homeownership rate under 65 percent over the next several years, well below the peak of 69.2 percent in 2004.

Private sector apartment data providers are in agreement with slipping occupancy rates in 2020 and 2021 and rent growth progressively slowing over the next two years. But occupancy rates dropping from near-all-time highs certainly does not portend doom. Rent growth below two percent, when inflation is forecast between 2 to 2.5 percent is noteworthy, however. In addition to focusing on alternative sources of revenues, owners and operators will need to bump up efforts to reduce operating expenses, a challenging prospect amid the current environment of mounting property taxes and rising wages.

Demographic, economic and societal factors continue to favor the apartment industry, even with expectations of decelerating economic growth. The trend of delaying marriage, children and homeownership shows no signs of easing. The NAR reports an all-time high in 2019 for the age of first-time home buyers, 33 years old, up from 29 when the data series began in 1981. According to Freddie Mac’s survey of renters and homeowners released in mid-2019, 39 percent of renters think it is not very to not at all likely that they will ever own a home, the highest percentage since Freddie started conducting the survey in 2015. Of renters who say they can afford to buy now, 24 percent feel that renting is a good choice right now, also a survey high. Additionally, 59 percent of renters plan to rent their next residence and an astounding 80 percent of apartment renters say renting is a better fit for their current lifestyle. 

With overall wage growth still lagging in strength compared to other labor market indicators, affordability will remain a challenge for all types of housing in 2020. Adverse policies stemming from initiatives to fix the deep-seeded and complex causes of housing affordability will likely be the biggest risk to the industry in 2020 and beyond. 

December 20, 2019
apartment buildings
Research Reflections
2019 Apartment Housing Outlook

As we head into 2019, tailwinds for the apartment industry outnumber headwinds. Annual rent growth increased to 2.6 percent during the third quarter from 2.4 percent the prior year, according to CBRE Research; and most markets are absorbing new supply with relative ease. In fact, CB reported that third quarter absorption was at its highest level since the late 1990s.

A recent National Real Estate Investor survey revealed that 41 percent of investors plan to be net buyers of apartments in 2019, down from last year’s 47 percent, but far outnumbering the 14 percent who plan to be net sellers. The most common complaint from rental housing investors of late is the inability to find deals that will deliver returns within their target range. But this certainly hasn’t held back transaction volume this year, which was up 8.3 percent year-to-date through October, as reported by Real Capital Analytics.

Signs of softness were beginning to emerge in October monthly data with volumes down on a year-over-year basis. Still, pricing remained in high-growth mode, increasing 8.5 percent and 10 percent for mid-/high-rise properties and garden properties, respectively. RCA’s Commercial Property Price Index™ swelled by 9.6 percent for all apartment types versus 6.4 percent for all property sectors.

The national economy continues to impress in indicator after indicator: Consumer spending, corporate profits, business optimism, unemployment rates, job openings and job growth. Through November, average monthly job gains measured 206,000, a vast improvement over 2017’s average of 182,000. Job openings were at all-time high in October with 7.1 million positions available, outnumbering the unemployed by more than 1 million.

The most recent outlook survey from the National Association for Business Economics (NABE) revealed overall optimism for 2019 but risks weighted towards the negative. NABE economists were most concerned with trade policy followed by rising interest rates, while stronger wage growth came out on top for upside risks. Survey respondents put the odds of a recession in 2021 or later at 50 percent and 30 percent during the second half of 2020.

Wage growth, as measured by average hourly earnings, broke the 3 percent mark in August for the first time since the recession, and grew 3.1 percent during the past two months. Wages are forecast to remain elevated for the next two years and should handily beat inflation. This bodes well for increased consumer spending on all types of good and services, including housing.

Multifamily housing permits began to show some weakness during the summer and have now experienced three consecutive months of year-over-year declines in the seasonally adjusted annual rate. A number of factors may be contributing to the slowing of permit-filing including higher construction material and labor costs; construction labor constraints; a necessary pause in building some market segments such as luxury apartments, which have experienced a glut of new supply in certain submarkets; and general barriers to construction, whether in the form of regulations, complicated approval processes or community opposition to new construction.

Multifamily housing starts, on the other hand, have experienced increases this year, averaging 6.6 percent year-over-year monthly through October. Forecasts for next year range from 340,000 to 383,000 units. From 2012 to 2017, starts in properties with 5 or more units averaged 348,900 units and are averaging 365,000 in 2018 at a seasonally adjusted annual rate. Given recent declines in permits, starts can be expected to slow next year, providing some relief to the imbalance of the aforementioned overbuilt segments by the second half of 2020.

Last month, Freddie Mac reported it expects fewer home sales in 2018, down 1.6 percent from 2017’s level. A modest increase of 1 percent is forecast for 2019. The slowing in the for-sale market has been mainly attributed to rising mortgage rates, which hit a 7-year high back in mid-November. Freddie Mac is forecasting a 50-basis point increase in mortgage rates in each of the next two years, reaching 5.6 percent in 2020. Moody’s Analytics’ forecast is more conservative with rates leveling off at 5 percent through that same time period.

Apartment market forecasts are showing more of the same in 2019, with occupancy rates in the 94 percent to 95 percent range and rent growth averaging in the 2 percent to 3 percent range, although slowing in 2020. Potential headwinds for the industry come in the form of rising interest rates, a constrained labor market, inflationary pressures and additional regulations, which could stymie both new development and rent growth.

Demographic, economic and behavioral factors will ensure healthy apartment demand in 2019. Despite the homeownership rate ticking up beginning in mid-2016, it has been flat for the past two quarters when adjusted for seasonality and increased only 0.1 percentage points in the quarter before that. Marcus & Millichap estimated the gap between a monthly home payment and apartment rent to be $339 as of the third quarter, its widest level since the recession. Rising mortgage rates, the lack of supply for buyers trying to transition into homeownership and tight credit standards are keeping apartments attractive for many potential first-time homebuyers.

Renting as a lifestyle choice among all age cohorts is also sustaining demand. According to the most recent “Renter Profile Survey” from Freddie Mac, 63 percent of renters are satisfied with their rental experience and 58 percent feel this is a good choice for them right now. The number of renters who expressed having no interest in owning a home has increased gradually during the past three years. Add to that the post-Millennial generation, sometimes referred to as “Gen Z,” the oldest of whom will be graduating college and entering the workforce within the next few years, and you have a formula for continued steady growth in the apartment industry.

January 1, 2019
Apartment Building
Research Reflections
Rental Housing Construction Faces Multiple Pressures

The final effects of intensifying trade wars are yet to be measurable, but other dynamic changes are causing the rental housing industry to face significant hurdles related to new apartment construction and renovations.

A coincidental combination of natural, demand-related and political factors, as well as a very tight labor market, are increasing construction costs. According to the Bureau of Labor Statistics, the Producer Price Index (PPI) for all construction inputs rose from 102.1 to 109.7 from May 2017 to May 2018, a 7.4 percent increase. This is a dramatic reversal from the first eight months of 2016, when the same PPI experienced negative year-over-year growth.

Among the different construction material PPIs, lumber and plywood saw the biggest year-over-year jump at 13.9 percent, followed closely by copper and brass mill shapes at 13.8 percent. Lumber was hit especially hard, as wood-boring beetle infestations and Canadian wildfires put a large dent in the supply. The Trump administration’s tariffs of 21 percent on Canadian lumber, a major source for the United States, along with Americans’ strong demand for newly-constructed homes, only sent prices higher. According to the National Association of Home Builders, these lumber issues added $3,000 to the price of an average rental housing unit and $9,000 to the average single-family home.

Just in the past year, the 7.4 percent increase in the PPI for all construction inputs greatly exceeded the 2.8 percent increase in the overall Consumer Price Index. Not a single individual input experienced negative year-over-year growth to May. Aside from lumber and plywood, and copper and brass mill shapes, steel mill products and asphalt felts and coatings also surpassed the year-over-year PPI increase for all construction inputs, at 10.5 percent and 8.9 percent, respectively.

We have yet to see the impacts of recent developments in trade policy, which will doubtless lead to further fluctuations in prices. Canada’s new tariffs on U.S. exports, which took effect on July 1, were a response to the Trump administration’s steel tariffs. Prices for sheet metal products may see a bigger jump in the coming months.

According to the Census Bureau, the total value of new U.S. residential construction put in place increased 6.4 percent year-over-year to May, compared to 4.5 percent for all types of construction. The increase for residential is lower than the 10.9 percent year-over-year increase in May 2017, but still higher than the 5.3 percent increase in May 2016. Put into a broader context for the past 10 years, the most recent increase in total value for residential construction is nothing out of the ordinary. Since this metric only measures projects completed thus far, the recent spike in costs for materials may not be yet be reflected.

Value of Residential Construction Put in Place

The final factor adding to construction woes for the industry is a historic labor shortage. Although the national unemployment rate ticked up to 4 percent as of June, it has remained stubbornly low, suggesting employers have had challenges with finding an adequate pool of workers. The rental housing industry has been experiencing a shortage of construction workers since the recession. At 34,600 employees as of May, rental housing construction employment only recently surpassed the previous peak in 2006. This does not consider, however, that there were 600,000 rental housing units under construction as of May, compared to just 416,000 units under construction during the last multifamily construction employment peak. Average hourly construction wages have reached their highest point ever, at $29.71, since the Bureau of Labor Statistics started keeping track in 2006. This translates into a 2.9 percent year-over-year increase from last year, higher than the 2.7 percent increase for all types of employment.

New Multifamily General Contractor Employment

The rental housing industry faces historic challenges against construction with growing costs and tight employment conditions. With natural factors like wildfires still affecting lumber, international trade skirmishes still escalating and an economy still revving, only time will tell if current conditions are temporary or part of a new normal. 


August 1, 2018
Rental Housing Construction
Research Reflections
Fast-Growing, Business-Friendly Sunbelt Markets Outshine in Apartment Performance

As Americans and immigrants continue to migrate to metro areas throughout the nation that offer ample employment opportunities and relatively lower cost of living, winners and losers have inevitably cropped up, not just in population growth, but in apartment market performance as well. An analysis of the nation’s fifty largest metro areas reveals a distinction in apartment market performance between business-friendly Sunbelt regions that gained the most people, and older metro areas that gained the least people between 2010 and 2017, whether in total population, domestic migration, or immigration. Markets that attracted the most newcomers posted superior gains on most apartment performance metrics.

According to the Census, four of the top five metro areas for total population growth were in relatively affordable, business-friendly Sunbelt locales, with the top two spots firmly held by the Texan duo of Dallas-Fort Worth and Houston. Texas added 352,100 jobs in the twelve months leading up to May 2018, ranking it first among all fifty states for job creation, according to the Bureau of Labor Statistics. The slowest-growing markets were all located in the Northeast and Midwest, and three of the five outright lost population, namely Pittsburgh, Cleveland, and Hartford.

According to CoStar, the top five markets for population growth handily outperformed the bottom five markets in every category. In line with population trends, we find that the top five markets for total population growth collectively saw their inventory in units grow an average of 13.8 percent, as expected, almost double the rate for the bottom five markets. Average rent growth for the top markets was also double the rate of the bottom markets at a handsome 32.5 percent. Broken down annually, the top markets saw rents grow an average rate of 3.6 percent per year, while the bottom markets only saw rents grow 1.9 percent annually. Although deliveries in the top markets were almost double that of the bottom markets, net absorption was commensurate as were vacancy and occupancy levels, a testament to the strong demand for apartments regardless of growth rates.

If we take a closer look at one of the two factors making up total population change – domestic migration from 2010 to 2017, all five of the top metro areas were also in affordable, business-friendly regions of the Sunbelt. Texas metros once again dominated this list, with Dallas-Fort Worth and Houston still holding the top two spots, and Austin also having attracted its fair share of domestic movers. At the bottom of the list, we see a collection of older, more expensive markets, led by the nation’s three largest metro areas – New York City, Los Angeles, and Chicago. Although New York City registered an increase in total population during this period, over a million residents left for other U.S. metro areas, while Los Angeles and Chicago lost roughly half a million residents each. New York, California, and Illinois all ranked in the bottom ten of the American Legislative Exchange Council’s 2018 Rich States, Poor States economic outlook ranking, which ranked states based on an analysis of income transfer programs, taxes, and population and job growth. On the other hand, the states possessing the top five markets – Texas, Arizona and Florida, are all ranked in the top fifteen.

The top markets for domestic in-migration saw inventory in units grow at an average rate of 18.0 percent, almost triple that of the bottom markets. This explosive growth in inventory caused the top markets to experience an elevated vacancy rate of 7.5 percent, versus 5.6 percent for the bottom markets. Nevertheless, the top markets still experienced higher rent increases, with the average rent per unit having grown 35.3 percent cumulatively. Regions with high out-migration saw lower rent growth at 23.7 percent. Despite the higher vacancy rates in the top markets, net absorption was still stronger, indicating that the heavy in-flow of new residents was adequate to swallow new inventory.

The other major factor comprising total population change is immigration. Except for Houston, the markets with the largest in-flow of immigrants were all expensive and large coastal regions. As discussed above, New York City and Los Angeles have experienced very high rates of domestic out-migration, far surpassing the number of immigrants moving in from abroad.  Metro areas with the lowest growth from immigration were all smaller, affordable markets sprinkled throughout the interior of the country. Interestingly, apart from Oklahoma City, the bottom markets for immigration still had higher gains from immigration rather than domestic in-migration, with Birmingham and Memphis having lost more residents to other U.S. metro areas.

The difference in performance between the top and bottom markets for immigration was more subdued. Although the top markets showed a superior average rent growth rate of 26.5 percent versus 21.3 percent, and lower vacancy rates at 5.3 percent versus 7.8 percent, deliveries and absorption were below the bottom markets. The bottom markets also experienced more growth in the number of units (as a percent of existing stock), possibly explaining the slightly lower rent growth rates and higher vacancy.

The common thread for the metro areas that experienced the strongest growth in apartment market metrics is that they are mostly affordable, business-friendly, Sunbelt regions. The apartment markets of these areas have been buoyed by strong job growth and a massive influx of new residents. Although the older, more expensive markets have still provided healthy apartment market returns, their results are no match for the winning Sunbelt metro areas. The fact that the top immigration markets, comprised of many of the same older, more expensive markets as mentioned above, only saw marginally better growth rates than the bottom immigration markets, confirms the appeal of business-friendly, affordable regions both for residents and the people who employ them.

July 17, 2018
Fast-Growing Aapartments
Research Reflections
Are Apartments Really Getting Bigger?

Recent anecdotal stories seem to indicate that larger apartments are becoming more popular as Baby Boomers downsize from their single-family homes into apartments, or as young residents stay in apartments as they begin to have their first children. Coupled with the well-documented challenges toward millennial homeownership, one would think apartment sizes have been increasing. According to data from the Census Bureau, however, these trends may not necessarily be true.

From 2011 to 2016, the median size of newly-completed apartments decreased slightly from 1,117 to 1,085 square feet. At the same time, the median size of new single-family homes grew substantially from 2,233 to 2,422 square feet. These trends indicate that, if anything, the size gap between apartments and single-family homes has only grown.

Median Size of Units Completed Apartments vs. Single Family

These trends may be indicative of several demographic and economic factors. The shrinking size of apartments may simply be a reflection of the steadily decreasing household size over multiple decades. According to the Census, household size was 3.33 in 1960. As of 2017, there were 2.54 people per household, one of the lowest figures ever recorded. The introduction of micro-units in some of the more urban markets, as well as the growing plethora of neighborhood and entertainment options that encourage residents to spend more time outside of their apartments, may be additional contributing factors.

At the same time, homebuilders have been forced to build larger homes thanks to several pressures. These include increasing land, construction and labor costs, as well as tighter credit requirements limiting the pool of potential homebuyers to the more affluent relative to the boom years.

Breaking down the same data by region gives a similar picture, as median apartment sizes either shrank or remained stagnant in three of the four regions. The South saw apartments shrink the most from 1,205 to 1,101 square feet. The Midwest generally had the largest apartments, followed by the South. Apartments were smallest in the Northeast, followed by the West.

Median Size of Units Completed by Region - Apartments

Looking at regional data for median single-family home sizes only makes the distinction clearer. Single-family homes grew markedly in every region, with homes in the Midwest growing the most from 2,105 to 2,297 square feet. Interestingly, the single-family home sizes by region almost read like an inverse of apartment sizes by region. Whereas apartments are the largest and single-family homes are the smallest in the Midwest, apartments are the smallest and single-family homes are the largest in the Northeast. Although it is difficult to tell if this is a general result of differences in zoning stringencies, demographics, or other causes, the data seems to suggest the Midwest has a smaller gap in housing sizes, while the gap is larger in the Northeast.

Median Size of Units Completed by Region - Single Family

If we examine the average size of apartments by the metro areas with the most units under construction, per recent data from CoStar, we see that apartment sizes will likely shrink even more substantially into the future. With the exception of Greater New York City, apartments are set to be smaller in Dallas-Fort Worth, Washington, DC, Los Angeles and Seattle, even though construction has dramatically ramped up over the past seven years.

Average Size of Units by Metro Area - Apartments

Census data on the number of bedrooms in apartments and single-family homes confirms the same divergent trend of unit sizes. Together, the share of studios and 1-bedroom apartments among newly-completed units increased from 2011 to 2016, while the share of 2-bedroom and 3+ bedroom apartments decreased over the same time. Among newly-completed single-family homes, the share of homes with 3 or less bedrooms decreased over the same period, while homes with 4 or more bedrooms increased from 39 to 46 percent.

Number of Bedrooms in Units Completed - Apartments

Number of Bedrooms in Homes Completed - Single-Family

While it is possible that certain demographic groups or niche customer groups are demanding larger apartments, it has not yet borne out in the data, which show that overall, apartments have become somewhat smaller. Whether this means apartment developers are already serving the desires of customers wanting smaller apartments, or if there is an untapped market for larger apartments, remains to be seen. 

Paul Yoon, NAA Research Analyst

March 28, 2018
Apartments Size Trend Research
Research Reflections
A Brighter Outlook for 2018

The first quarter of 2017, with its post-election uncertainties and interest rate increases, portended a potential correction in the commercial real estate market.

Although deal volumes fell off significantly that quarter and have continued to drop from year-ago levels, interest rates have stabilized. Coupled with the realization that any actions by the current administration were unlikely to materially impact 2017 performance, capital came off the sidelines, business plans were pushed forward, and it was basically business as usual before the arrival of summer. The backdrop of a healthy global economy certainly didn’t hurt.

As we progressed through the year and are now winding down, more and more analysts have made positive adjustments to their forecasts for the economy, capital markets and the overall apartment market.

Risks to the Economy through 2018

On the economic front, GDP forecasts for Q4 2017 have risen, mainly thanks to better performances than had been expected for the past two quarters. The Federal Reserve Bank of New York is the most optimistic, forecasting a 3.9 percent growth rate, which would be the highest in more than three years. In general, however, 2018 GDP forecasts have only been revised slightly upward.

The December 2017 Outlook Survey published by the National Association for Business Economics showed 60 percent of economists think upside risks outweigh downside risks to the economy through 2018, a reversal of the September survey. An overwhelming majority of economists (88 percent) believe the chance of a recession in 2018 is highly unlikely, while nearly 48 percent date the peak of the business cycle at 2020 or later. 

With labor markets as tight as they are, job gains are expected to decrease slightly from 2017 levels. However, the national unemployment rate is projected to tighten further, according to Moody’s Analytics. Unemployment in 2018 is forecast at 3.8 percent, an annual average rate not seen since the late 1960s.

Apartment Market Outlook
Increased liquidity can be expected in 2018, based on a Capital One survey of apartment industry professionals. Eight-four percent of respondents plan to be a buyer or seller, up from 71 percent last year. Just 16 percent aren’t making any investment or divestment plans compared to 29 percent at the end of 2016. The GSEs have surpassed banks in terms of anticipated sources of financing, and not surprisingly, secondary and tertiary markets are thought to be the winners in terms of value increases. Nearly half of the respondents ranked rising interest rates as the biggest risk for 2018.

The same demographic and societal shifts that have been driving multifamily demand are anticipated to continue in 2018. While research suggests more first-time home buyers are making successful purchases, the pent-up demand from Millennials living with parents or doubled up is a reality with renting being the likely option once they are ready to form their own households. The homeownership rate is forecast to stay well below its long-term average of 65.7 percent in the near-to-medium term.

Homeownership Rate 2018

One major story from 2017 that will have wide-reaching impacts on the 2018 apartment sector was construction: costs, delays, and declines in permits and starts. Construction spending forecasts vary widely, but they are aligned in predicting significantly less growth, or even declines, in the value of new construction than the recent double-digit annual growth during the past five years.

Multifamily Construction Spending Forecasts

The median forecast for multifamily starts is 345,000 units for 2018, down from an average of about 385,000 from 2015-2017 (projected).

Multifamily Starts Forecast

Fewer completions along with construction delays will give demand a chance to catch up with new supply, resulting in only slight declines in occupancy rates. Rent growth is still forecast to remain at or above longer-term averages given the healthy demand dynamics. 

Apartment Market Forecast 2018

The U.S. apartment market will ring in the new year poised for another year of moderate growth. Corporate and individual tax cuts should spur business investment and consumer spending, respectively, helping to offset the negative impacts of potential interest rate increases and lackluster wage growth. 

Paula Munger, Director of Research and Analysis for NAA

Read industry CEOs outlook for 2018 in Will Apartments Be Worth More in 2018?


December 18, 2017
2018 apartment forecast
Research Reflections
Majority of Apartment Communities are Cost-Burdened

Examining data trends from NAA’s 2017 Income & Expense Survey, as well as the Census’ 2015 Rental Housing Finance Survey, reveals that older properties are becoming ever more cost-burdened. With older properties making up the bulk of the nation’s apartment supply and affordable housing inventory, this trend highlights the importance of understanding the costs associated with maintaining these properties.

The busiest decade for apartment construction was the 1970s, with 3.6 million units completed, according to CoStar Group. In fact, about half of the existing stock was built prior to 1980. More than one-fifth of these properties are owned by individuals. And while many of these apartment communities undoubtedly have been through multiple facelifts, 60 percent are still considered “2-star,” which is the lower tier of what CoStar labels “naturally affordable” properties.​

CoStar Rating Pre 1980

Operating and managing an older property comes with different challenges compared to those newly constructed, using automated systems and advanced technologies. The 2017 NAA Survey of Operating Income & Expenses in Rental Apartment Communities reveals significant cost differences among several expense categories for market-rate, garden properties, based on the age of the building.

NAA IES Market Rate

The survey breaks down income and expenses for communities into the age groups less than 5 years, 5-9 years, 10-19 years and 20 or more years old. This analysis focuses on the extreme ends of the spectrum. Based on dollar value, an owner of a property 20 years or older had expenses of 81 cents to the dollar compared to a property less than 5 years old. That might sound like a bargain until rent revenue is factored into the equation, which came at a 31 percent premium for new properties.

As a percent of total operating expenses, costs for older properties were greater for salaries, insurance, utilities, contract and management fees, administrative costs and repairs and maintenance. Only property taxes and marketing were smaller pieces of the pie for a property 20 or more years old. Fast forward to the bottom line, older properties earned just 73 cents to a newer property’s $1 in income.

Capital expenditures, not included in net operating income calculations, were obviously higher for older properties because renovations and replacements are vital when it comes to keeping the property competitive. However, in 2016, capital expenditures for properties 20 or more years old averaged $1,727 per unit versus $425 per unit for properties built since 2012, the widest gap since 2007.

Not included in the NAA survey is mortgage, debt and financing information. The recently released 2015 Rental Housing Finance Survey (RHFS) from the U.S. Census Bureau shows a median debt-to-equity ratio of 78 percent for apartment properties sampled. Segmenting these communities by age revealed that more than half of apartment properties built before 1980 were severely debt-burdened.

Debt to Equity Ratios by Year BuiltMultifamily Market Values by Year Built
The RHFS also includes estimated market values of apartment properties. More than 40 percent of properties built before 1980 had a market value under $500,000, less than the median price of single-family homes in some higher-priced markets.

Older, livable apartment communities are critical to our nation’s housing stock because they provide affordable options to the 38.8 million people who call apartments home. Understanding the costs associated with caring for and running these properties, from upkeep to mortgage payments, adds an important dimension to the housing affordability discussion.

For more information, please contact Paula Munger, Director of Industry Research & Analysis


October 1, 2017
NAA’s 2017 Income & Expense Survey
Research Reflections
Southern and Mountain West States Are Hotbeds for Apartment Demand

A deeper dive into the July demand research product, the top states for projected apartment demand tend to be lower-cost, business-friendly Southern or Western states with strong job growth fundamentals.

The latest population figures from the U.S. Census Bureau show that nearly 38 percent of U.S. residents live in the South, with another 24 percent calling Western states home. These patterns of domestic migration are expected to continue well into the future, according to research conducted by Hoyt Advisory Services for the NAA and NMHC.

The top 10 states for apartment growth (based on percentage increase) will need 2.4 million new apartments from now through 2030. What do all of these states have in common? They are relatively low-cost and/or business-friendly. In fact, job growth in most of these states has surpassed the U.S. average since the Great Recession, even if some of them were slow to recover initially. 

Apartment Demand by percentageApartment Demand by number

Utah’s growth was nearly double that of the nation’s at 22.3 percent. Economic drivers have come from a wide variety of industries, including a burgeoning tech sector luring workers from across the country, as well as construction and professional/business services.

Florida, Nevada and Texas all witnessed cumulative job gains in the high teens. Texas, with its penchant for drawing major corporate relocations, was driven by the professional/business services sector. Florida and Nevada, both tourism magnets, also saw strong growth in the services sector as well as construction.

Job Growth 2009-2010

Looking at sheer numbers of units, Texas, Florida and California will each need more than a half-million apartments during the next 13-plus years—of all types and at all price points.

But what should all these apartments look like? Breaking the population down by age cohort certainly helps answer that question, bearing in mind that this forecast includes both renters and owners. The 65-plus age cohort will be responsible for over a third of population growth in each of the top 10 states for apartment demand, with Virginia, California and New York expecting the most significant growth from the senior population. While some research suggests that older apartment dwellers tend to seek out larger units with plenty of amenities, it’s impossible to generalize a group this large and geographically dispersed. Bottom line? A broad range of apartment mixes and amenities is needed to suit the diverse and multi-generational apartment communities across the country.

Population Growth by Age

Paula Munger, Director of Research and Analysis for NAA.

July 28, 2017
Apartment Demand
Research Reflections
United States Needs 4.6 Million New Apartments By 2030 or It Will Face A Serious Shortage

To meet growing demand, America needs to build at least 4.6 million new apartment homes at all price points by 2030. In addition, as many as 11.7 million older existing apartments could need renovation during the same period. 

These projections come from a new study commissioned by the National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) and conducted by Hoyt Advisory Services (HAS).

“It’s important to note that this number excludes the supply-demand imbalances already existing in some markets,” said Paula Munger, NAA’s Director of Research and Industry Analysis.

The study attributes this increased demand to:

  • The rise of young adults ages 18 to 34 as the largest generational demographic group and who are delaying homeownership; 
  • The aging population who are choosing the convenience of apartment living; and 
  • Immigration, which is predicted to account for about half of all new U.S. population growth through 2030.
  • Demand for apartments is at an all-time high as the number of renters has reached an unprecedented level. Nearly 39 million people in the United States — that is almost 1 in 8 — call apartments home. This demand:
  • Puts significant pressure on the apartment housing industry to meet their needs. 
  • Makes it challenging for millions of families nationwide to find quality rental housing they can afford at their income levels. Underlying the affordable rental housing shortage is an income problem.

Meeting projected demand means building more than 325,000 new apartment homes each year on average — a number the industry has not been able to hit for decades. From 2012 through 2016, the apartment industry built, on average, only 244,000 new apartment homes per year. The last time the industry built more than 325,000 in a single year was 1989.

Annual growth in renter households exceeded one million on average over the past five years, which is a record amount. Meanwhile, apartment vacancy rates as measured by RealPage Research fell or remained the same for seven straight years from 2009 to 2016.

At the individual Metropolitan Statistical Area (MSA), demand was ranked by both sheer number of apartment units needed as well as the percent increase of new apartments over the current stock. New York, Los Angeles, Dallas-Fort Worth, Chicago, Washington, D.C., and Houston each need over a half-million units over the next 13 years.


The fastest growing markets include Raleigh, Orlando, Austin, Charlotte and Las Vegas, each of which is projected to need apartments totaling 40 percent and greater of their current supplies.

“Even though we’re hearing about some markets potentially in an oversupply situation now, it’s typically occurring at the higher end of the market,” Munger said. “Keep in mind that we’re talking about apartments at all price levels, and that the research spans 13 years and even assumes two recessions.”

Net in-migrations, both foreign and domestic, are forecast to increase substantially in all of these cities, thanks to strong economies and healthy job growth. Professional services lead the growth with Raleigh and Charlotte also relying on their trade sectors, while Orlando continues to augment its leisure and hospitality sector. Austin’s growth is strong across most sectors, and even Las Vegas, historically reliant on the gaming industry, is showing signs of slowly diversifying its economy.

One main driver of future demand—immigration—is a hot topic in the media with reports of deportations and other crackdowns seemingly daily. As depicted in the chart, immigration is projected to slip below one million persons from 2017-2020 before picking up again in 2021 through 2030. Immigration comprising half of population growth is not unusual, and occurred during the 1990s.

As renting becomes more and more of a lifestyle choice, and not just an economic one, apartment demand will be driven by all age cohorts at every income level. Building 4.6 million new apartment homes by 2030 at all price points will go a long way in ensuring this demand is met.

Hoyt’s study covers an estimate for future apartment demand in the United States, the 50 states and 50 metro areas including Washington, D.C. The study defines apartments as units in buildings containing five or more rental units. The data and the Hoyt report, U.S. Department Demand—A Forward Look, are available at, a website jointly owned by NAA and NMHC.

Study Ranks Cities Based on Their Ability to Add New Apartments

Honolulu, Boston, Baltimore, Miami and Memphis are the most difficult cities to add necessary new apartments, according to new research from Hoyt Advisory Services, commissioned by NAA and NMHC. The research examines and ranks 50 metro areas based on specific factors, including local regulations and the amount of available land to develop.

The research also shows that the easiest cities to build new apartments include New Orleans, Little Rock, Kansas City, Indianapolis and St. Louis.

The ranking, titled the Barriers to Apartment Construction Index, scores the metro areas along an index that reaches as high as 19.5 in the most difficult market to add apartments (Honolulu) to -5.9 in the easiest (New Orleans). While real estate is project specific, any score above the median of 1.8 means that it is harder to add new apartments than other metros.

There is strong correlation between the difficulty of adding new supply and affordability, as measured by the percentage of households spending 35 percent or more of their income on rent. Nearly half of residents in Miami, Honolulu, Riverside and Los Angeles are in this category, and these markets are some of the most difficult in which to add new supply.

June 30, 2017
New Apartments demand
Research Reflections
Demographic Double-Dipping

In addition to Millennials, Baby Boomers are a ripe demographic cohort for the renter lifestyle.

The imagery of sleek apartments offering a convenient, amenity-rich lifestyle is often thought of as being synonymous with Millennials. While there is no doubt that Millennials have impacted the way developers and property managers build and market apartments, demographic data show that Baby Boomers are seeking similar lifestyle accommodations in apartments. As the next-largest generational cohort after Millennials, Boomers offer an abundance of market possibilities the industry should not overlook.

According to the U.S. Census Bureau, the national homeownership rate currently stands at 63.6 percent as of the first quarter of 2017. While the homeownership rate for those aged 55 to 64 years now stands at 75.6 percent, the second-highest among all age cohorts analyzed by the Census, it is considerably lower than the 78.6 percent rate recorded during first quarter of 2011. Considering the sheer size of the Boomer population, the steady rate drop over the past six years represents a substantial number of new renters in the market.

If we dig deeper, we find more evidence that renting has become more popular with Boomers. As of March 2017, a significant 32 percent of Boomers are no longer interested in ever owning a home, a substantial increase from 23 percent in January 2016, according to FreddieMac. In fact, for those who are already renting, 67 percent expect to continue renting for their next residence, reflecting a general satisfaction with the rental lifestyle. Both of these sentiments actually reflect a greater share than both Millennial and Gen X survey respondents. Furthermore, a whopping 78 percent of Boomers are very, fairly or somewhat willing to downsize to live in an urban area. This implies that empty-nesters, many of whom are now free from child-rearing duties, may respond well to apartment communities that offer a lifestyle centered around convenience and leisure.

In terms of financial power, FreddieMac’s survey data indicates Boomers are the most likely not to have any debt, while also being the least likely to live paycheck-to-paycheck. Again, this could mean developers and property managers should focus on marketing features and experiences to this group, rather than pure economics.

Another factor that makes apartment communities more appealing to Boomers is the opportunity for socializing. According to a joint study by Age Wave and Merrill Lynch, two-thirds of retirees say they want to live in a community with a diverse population. This indicates that conventional apartment properties have a strong ability to pull in older residents, especially if they offer an appealing roster of community events and amenities geared towards fostering social connections for all types of residents.

It may be time to retire the stereotype of those aged 55-plus holding onto their owned homes for life, or retiring to quiet, secluded places. The generation known for defying convention may be redefining what they call home, and it may very well be in your apartment community.

May 11, 2017