The aging of the baby boomer generation will lead to a shift in demand from single-family to multifamily housing, spurring a construction boom that’s expected to begin this year, according to a report by an economist with the Federal Reserve Bank of Kansas City.
“Very strong” multifamily construction growth is expected to resume by early 2014, followed by “moderately strong” single-family construction growth a year later in early 2015.
“The longer term outlook is especially positive for multifamily construction, reflecting the aging of the baby boomers and an associated shift in demand from single-family to multifamily housing,” writes Jordan Rappaport, a senior economist with the Federal Reserve Bank of Kansas City, with assistance from research associates Michael Connolly and Daniel Molling.
Multifamily construction is expected to peak at a level nearly two-thirds higher than its highest annual level during the 1990s and 2000s by the end of this decade, the Fed predicts.
While single-family construction experienced a boom between late 2001 through late 2005, there was no such boom in the multifamily construction space. Despite the absence of a boom, the sector still experienced a crash corresponding to the single-family sector, beginning in mid-2006 and “significantly accelerated” in mid-2008, according to the Fed.
In contrast to a weak growth in single-family starts following the housing market crash, multifamily construction starts rebounded almost immediately, writes Rappaport. By the middle of last year, they had regained two-thirds of their preceding fall. Construction in the multifamily sector is expected to grow about 10% a year through 2016, peaking in 2019.
“Understanding the evolving U.S. housing market requires recognizing the ongoing shift from single-family to multifamily housing,” says the report. “…The aging of the U.S. population will put further downward pressure on single-family construction but offsetting upward pressure on multifamily construction. ”
Written by Alyssa Gerace