Apartment development up to meet demand

A report from Fitch Ratings indicates that real estate investment trusts (REITs) – particularly those focused on the multifamily portion of the market – are increasing their development activity.

Historically high numbers of current and prospective renters looking for apartments or other rental housing are motivating many to work on development. Rents and occupancy rates have shot up in recent years and developers are still struggling to catch up to the current level of demand in many markets.

With the imbalance between supply and demand, one executive noted during an interview with National Association of Real Estate Investment Trusts (NAREIT) that the rental housing sector’s fundamentals are “about as good as they get right now.”

Property managers and owners have been able to push rents high – in many cases, higher than ever before. Apartments continue to lead the commercial real estate sector, which remains at the forefront of the housing industry in many respects.

Despite the increase in REIT activity, however, multifamily development remains limited. That fact should continue to benefit investors holding single-family properties for rental, as it provides them with a better opportunity to court renters. While many tenants of single-family rentals are former homeowners, household formation and life changes such as marriage or having children may motivate some younger adults to rent a home.

The long-term housing?outlook

Low consumer confidence, the weakness of the job market, tight lending standards, disenchantment with homeownership and other factors all continue add to the appeal of renting. While most of these pressures will likely be alleviated as the economy improves, it is unclear how Americans’ attitudes will develop in the future.

Some analysts have suggested that the housing crisis and other factors will encourage younger adults to rent even as they age. If those predictions are borne out, then single-family rentals may have previously unseen long-term viability, becoming particularly appealing to people who want enough space for a family but have no desire to purchase a home. They could come to represent a steppingstone between apartment living and homeownership, or an alternative to either one, potentially.

It will take time for that housing trend to emerge clearly, either way. For the third quarter, and possibly the rest of 2012, however, the limited availability of apartments and the continued difficulties afflicting homeowners and discouraging home purchases by most owner-occupiers will likely boost interest in single-family rentals.