Analyst sees bright skies for apartment builders

Rents are rising, occupancy rates are high, and the apartment business is about to explode -- all of which spells good news for the multi-family construction business, according to an analyst for John Burns Real Estate Consulting. In her Housing Dimensions blog, VP Lesley Deutch cited pent-up demand from young adults, modest job recovery and government policy as the three top factors pushing this trend.

Calculations done by John Burns, an independent housing research, advice and consulting firm, have estimated 3.4 million units of unmet household demand. “The largest segment of this demand is young adults, who have either moved back in with their parents or taken on roommates,” Deutch wrote. “We expect this demand to materialize over the next few years, with most of the demand entering the apartment market because of the inability to qualify for a home and uncertainty over their employment situation.”

The firm believes that job growth will approach 2% by 2012, not enough security for many people considering taking on a mortgage. 

As for rent increases, the forecast is for an average 4.5% growth per year through 2015, based on a range of MSAs. And although development money is flowing steadily into apartment construction, renters will eventually hit a ceiling when they realize it is cheaper to own than rent, Deutch warned. 

But in the short term, the most influential factor may be the backseat role of government in promoting housing in the years to come. “[We believe] 19 years of continually more aggressive government intervention toward homeownership is about to reverse itself,” Deutch wrote.