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New US Housing Index Underscores Long-Term Demand for Multifamily

In Addition to Offering Flexibility, Renting Seen as More Effective Option for Building Wealth Faster than Buying Homes and Building Equity in Some Markets
June 5, 2018
If a study by professors at two Florida universities is any indication, demand for multifamily housing should hold steady for the foreseeable future.

In certain markets, consumers who rent and reinvest the potential savings [versus mortgage payments] can build wealth faster than people who buy homes and build equity, according to the latest quarterly findings in the Beracha, Hardin & Johnson Buy vs. Rent Index.

What’s more, renting is becoming a long-term trend, unlikely to lose ground anytime soon, said Ken Johnson of Florida Atlantic University in Boca Raton, FL, one of the study’s authors.

“If I was a developer, I would feel more comfortable about building multifamily because the demand there is more sound than perhaps it’s ever been,” he told CoStar News.

Johnson said buying a home traditionally was one of the best ways for average consumers to build wealth. But they now have easier access to other savings vehicles, such as stocks, bonds and 401(k) plans.

“I don’t think we’re ever going back to the [previous] high levels of homeownership,” he added. “We have more people now who see the value in being mobile," making it a virtual toss-up as to whether buying or renting would produce greater wealth, on average.

Thousands of units are being built across South Florida to meet the increasing demand for rentals.

As soon as the buildings are finished, developers are selling to institutional investors for big money. Last month, Gables Residential sold the 297-unit Gables Marbella near Boca Raton to Heitman LLC for $112 million. The $377,104 price per door is the highest in Palm Beach County over the past 12 months, according to CoStar data.

Andy Hellinger, who’s developing the 528-unit River Landing Shops & Residences in Miami with Coralee Penabad, said young professionals have a specific goal when it comes to where they live.

“They want an experience, and that means they change their environment often,” Hellinger said. “If you buy a house, you’re tied to something that weighs you down.”

The index, released Wednesday, looks at home prices, mortgage rates, rents and other data in 23 U.S. metropolitan areas to determine whether it makes more sense to buy or rent and reinvest.

Many markets across the country appear to be nearing the peak of the current housing cycle, meaning it’s better to rent and reinvest, the study found.

Those areas include: Atlanta; Denver; Dallas; Honolulu, HI; Houston; Kansas City, MO; Los Angeles; South Florida; Minneapolis; Pittsburgh, PA; Portland, OR; San Diego; San Francisco; Seattle, WA; and St. Louis, MO.

Other regions are still below their long-term pricing trends, so buying in those markets makes more sense, the report's authors contend. That’s the case in: Boston; Chicago; Cincinnati and Cleveland, OH; Detroit; Milwaukee, WI; New York City; and Philadelphia.

Higher mortgage rates, steady returns in the stock market and the cost of ownership are the key factors pushing most of the country toward renting, said co-author Eli Beracha of Florida International University in Miami.

“All of these costs are rising faster than the cost of renting a comparable property,” he said in a statement. “Therefore, renters who take the money they’re saving each month and reinvest it are going to build wealth faster than those who buy a home, on average.”

Still, Johnson cautions that renters who have no intention of reinvesting should instead buy a home as homeownership amounts to forced savings. Also, Johnson said other lifestyle factors likely come into play, such as young families wanting to own homes in neighborhoods near schools.

“We encourage people to bargain aggressively,” he said. “Be willing to walk away from any deal where you think the price and the terms are too high.”



Paul Owers, South Florida Market Reporter  CoStar Group   
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