What Can Cause a Decrease in Multifamily Housing Demand

Question

Account Closed · Answer

Nuclear War, Biological contamination, a Carrington event, an EMP attack, complete collapse of western society, 3 D printers that can build a house in 24 hours, the caldera at Yellowstone blowing, the zombie apocalypse, the rapture. There may be a few more but those would be the likely ones. (if any)

Alan Ouellette · Answer

@William Coet

I would say a sudden drop in the local economy, like a major employer closing/ moving away. If the local population drops or people just can't afford what they used to then the market would be more competitive to fill vacancies (rents would drop). Note, if the national economy slowed, it would NOT have this effect since it would not necessarily cause people to leave the area but rents could still drop depending on how bad things get.

Just my two cents.

Account Closed · Answer

That is some pretty witty and talented stuff. Should have been a comedian.

Dave E. · Answer

@William Coet it also depends on the class of the rental. There is a huge housing shortage in the low to mid income level right now. That isn’t going to go away anytime soon. So if someone magically starts cranking out massive amounts of cheap housing that could cause a dip in demand. Construction costs are up right now, so builders and investors are not building new units at breakneck speeds.

The demand is lower in the higher end and luxury rentals.

Rick Pozos · Answer

I think what you are wondering is what MIGHT cause prices to go down on larger multi family properties so that you can determine if they are a good deal long term, right??

Interest rates are going to be the biggest factor. If rates go up too quick, prices will stall or maybe even go down.

Mitchell Rusten · Answer

@Dave E. This is market dependent IMO. I live in the Minneapolis area and everything within 40 minutes of downtown Minneapolis is built up, with little room left for a new development of cheap housing. In an area like Fargo North Dakota, where they have land to build as far as the eye can see, I think it’s a much more pertinent threat.

Joe Splitrock · Answer

It always comes down to supply and demand. Many factors affect those things.

Supply can obviously be affected by over-building. It is also affected by speculation, where people buy properties assuming prices will keep going up. Another thing that could lead to over supply is collapse of the short term rental market. People make the assumption that if the short term rental business dries up, they can convert to long term rental. If too many people try to do this at the same time, it will result in over supply. That may affect more single family properties, but keep in mind single family is a substitute for multifamily. Someone who has trouble finding a single family home to rent may temporarily rental  multifamily. Someone who can't afford a single family home may move into a multifamily. People may think they don't compete, but the they definitely do in my experience.

Demand is driven by population. Population over time is driven by births and migration. Migration is driven by employment and quality of life choices. People move to follow jobs, although the pandemic has expanded the options for work from home. The work from home trend is having an effect on geographic ties. The quality of life aspect relates to where people chose to live. Weather, entertainment, crime, political environment, schools, family friendly aspects and overall vibe of the area drive where people choose to live.

The economy is a huge driving factor on housing demand. When we enter recession, there are less jobs and people change living situations. Young adults move back in with mom and dad. People choose to live with roommates, rather than live alone. This creates a situation where the same number of people need less housing.

As other mentioned, natural disaster or manmade catastrophe will force migration. It can immediately reduce housing supply in one area and force people to relocate.  Even after the disaster repair is done, people refuse to come back. I had had tenants move into my property after crime, looting and protests scared them out of their neighborhood last summer. Years ago I had people relocate due to flooding. In both cases they told me they were never going back.

If you fear for the safety of your family, you will leave any city. In the hierarchy of human needs, safety is near the top. It is only behind food/water/clothing/shelter.

Sam Wilson · Answer

@William Coet - Changes in rental regulations and similar landlord/tenant laws.  For example, I recently heard of landlords asking for 6 months rent in advance and high deposits due to fear of moratoriums on rent payments.

I would also assume that as the single family market cools and houses become more affordable that (in general) people would move out of multifamily into single family.

Heigo Protten · Answer

In long term, probably one of the most important factors is births and mortality rates in specific areas. This plays a major role in the overall population (thus demand) + the actual needs of families (depending on when people have children and how many children they wish to have).

William Costello · Answer

@William Coet birth and mortality rate as well as the job market and the economy in that specific area. If there is a boom to the suburbs out of downtown the lack of demand will be there. What markets are you looking into?

What Can Cause a Decrease in Multifamily Housing Demand

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