Boston – Over the last four years, the fastest growing segment of the housing market has been the multifamily sector. Since reaching a nadir of 82k in 2009, multifamily housing starts have risen over 350%. Price growth has been just as impressive.
Over the longer run, multifamily construction is driven primarily by the outlook for local household growth and homeownership rates. However, in the short-run, vacancy rates and the pipeline of projects in development will determine how fast this demand is turned into additional supply.
On the condominium side, supply remains tight. According to the Greater Boston Association of Realtors, the inventory of existing condos currently sits at 514 units, which is down 31% from year ago levels. Consequently, in spite of some mild offsetting influences stemming from the rental market, condo prices will continue to rise over the forecast horizon.
Tight supply of both detached and multifamily residences has for a long time been a constraint in the residential Boston market. This has resulted in rents growing by an average annual rate of 3.7%, while home prices have increased by double the pace of income growth. In an effort to provide some relief, Mayor Thomas Merino recently announced a $16 billion housing plan that would bring an estimated 30,000 units of housing to the city of Boston by the year 2020.
This report is provided by TD Economics. It is for informational and educational purposes only.
The price index for apartment buildings has rebounded 64% from its trough and is just 0.3% from its previous peak. Condo prices arrived later to the party, but they have still risen 25%, outpacing the growth in single-family dwellings.
It is not difficult to find the reason for the rebound in multi-family housing. The recession and foreclosure crisis turned homeowners into renters, and renters are much more likely to live in multifamily dwellings. At the same time, credit constraints limited the pool of first-time homebuyers, leaving them either staying at home or renting.
While these broad themes have played out in multifamily housing markets across the country, the real estate adage of “location, location, location” still rings true. The strength in multifamily housing varies widely by local demand and supply fundamentals.
With very little new supply, prices have grown 12% year-over-year. Only 3,300 new units are expected to make their way onto the market by the end of 2015, which will fall short of estimates of an additional 4,600 potential buyers
Mayor Merino’s housing plan is still in the early stages and many details still need to be ironed out, but there is no question that the plan, Housing Boston 2020, would be a positive for the metro’s multifamily sector.