Posted by: Fred Soelter | July 28, 2010

Multi-family Housing Poised for a Comebackl?

Luxury Multi-family Housing Segment Positioned for Above Average Growth in the Next Two Years

Executive Summary: Permits and construction starts for multifamily projects have risen dramatically over the past month. These projects have a long entitlement process, which suggests confidence in the medium to long term outlook for this sector. The luxury condominium market is currently undervalued and builders need to start now for deliveries in 2012.

Market Analysis: The U.S. Census recently released data that suggests that while single family construction is lagging far behind its historical levels, multifamily construction has not been hit as hard as other segments of the construction industry. In fact, multifamily seems poised to lead the recovery.

Table 1. New Privately-Owned Housing Units Authorized in Permit-Issuing Places
                                       Total     1 unit   2 to 4      5 +
May 2010 from April 2010  -5.9%   -9.9%   11.8%   9.3%
May 2010 from May 2009    4.4%   3.18   -13.6%  13.6%

Table 3. New Privately-Owned Housing Units Started (2)
                                        Total     1 unit   2 to 4    5+
May 2010 from April 2010  -10.0%   -17.2%  (S)      38.3%
May 2010 from May 2009     7.8%   15.3        (S)     -17.0%

Permits have increased by 13.6% in the last year and actual starts are up an amazing 38.3% in the latest month reported. This means that not only are permits on the rise, the pent up demand created by previously issued permits has reached the point where construction starts have dramatically increased.

The recession has brought a new sense of frugality to many households and multifamily housing provides the affordable, yet luxurious, residences they have been accustomed to. Most condominium communities also have amenities that exceed those available in a masterplanned subdivision, i.e.; pools, spas, TV lounges, business centers, meeting rooms and coffee bars. Data also shows that buyer profile for luxury condos is a two person household earning far above the U.S. median.

Land prices, which historically take longer to drop than home prices, have finally come down to levels that will support high density housing. Projects like Playa Vista and the downtown condo market, combined with the current level of quality in construction and acoustics, have created an acceptance of attached living. And the need for more housing has risen, not dropped. Given the fact that most high density projects require zone changes or General Plan Amendments, as well as site specific architectural designs, now is the time to start the process.

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