Apartment buildings and condominiums, once disregarded in favor of homeownership, are enjoying a renaissance of sorts due to a change in demographics and living habits. Multi-family residential properties are on the rise — literally, if skylines are any indication — in cities both nationally and globally.
In the US, multi-family housing first became common in the 19th century when tenements were popularized due to booming population spurred by rapid immigration. These units weren’t glamorous by any means; in fact, they lacked proper lighting, ventilation and plumbing for years. Acts were passed in the late 1800s and early 1900s to remedy living conditions with regulations mandating better sanitation, more space and natural light. In the meantime, wealthier families left their homes in cities for more spacious regions.
Following the Multiple Dwelling Law of 1929 in NYC, new multi-family properties built were far superior to the tenements many residents had previously endured. These “pre-war” buildings remain some of the most spacious and solid units the city, especially when renovated and updated to fit modern needs. New apartment buildings progressively introduced higher standards for light, space and safety over the years.
Though new rules began to improve urban conditions, population density and industrialization led many Americans in the early 20th century to migrate outside of cities and purchase suburban homes, a marker of middle-class affluence and stability. Buying a house became the new normal, a rite of passage attainable and desired as part of the basic “American Dream” package. Multi-family units were thought of as less desirable, and with post-Depression wealth accumulation and automobile ownership, the suburban package seemed to be an ideal one.
This phenomenon, which some call “urban sprawl,” has more recently been documented as a potentially devastating one. Environmentally, building and buying homes on the outskirts of cities uses more land and energy than is sustainable; financially, they cost more for governments (and taxpayers) to maintain; ethically, they take away from central city resources, leading to worsened health and the isolation of poorer communities.
But today, the sprawl is reversing in some aspects, with homeownership levels at their lowest in 50 years and urban rental surging. This is in part due to the impacts of the 2007-2009 Great Recession, which came about after the housing bubble burst left banks and homeowners in crisis. Since the recession unfolded, 7 million Americans have experienced foreclosure and homeownership has stagnated. On the flip side, 10 million renter households have been added in the last decade.
This is in addition to the fact that the youngest generation of adults — millennials — increasingly prefer cities. With greater amounts of student debt and lower income than their parents when adjusted for inflation, it’s less feasible for young adults to buy than it is to rent. But given the choice, it seems they would choose cities anyway: according to a Nielsen report, “Sixty-two percent [of millennials] indicate they prefer to live in the type of mixed-use communities found in urban centers, where they can be close to shops, restaurants and offices.” Many empty-nested baby boomers who left the city to start families are moving back, too. The result? US cities are outpacing suburbs in growth for the first time since 1920.
Given that millennials and baby boomers are the largest generations, comprised of 94 million and 78 million respectively, this matters. The construction of multi-family housing units and apartment buildings has seen a sharp increase, as have investments in this sector. The US market is echoed across the globe: in 2014, the UN found that more than half of the world’s population lives in cities, especially in China, India and Nigeria.
Since young adults are waiting longer to put down roots, marry and start families, it’s unclear whether living habits will change enough to slow this trend as generations age and the housing market recovers. At least for the time being, the demand for multi-family rental is expected to continue growing: the Urban Institute released a study suggesting that 59 percent of new household formation over the next 15 years will be renters, a demand suppliers are rushing to meet.
Younger millennials are entering adulthood, creating more demand for rental units; older millennials are starting smaller families than their parents which are more suitable to urban lifestyle; retiring baby boomers are downsizing, too. With both environmental and social awareness trending upwards along with population growth and urban revitalization, it’s likely that the multi-family residential sector will continue its surge as cities expand.
Ethically conscious multi-family property management and development, therefore, will make or break the future of not just real estate, but the masses of people ditching picket fences and shiny cars for skyscrapers and subways.