The march toward multihousing continues

The U.S. is a long way from Germany, where only 42 percent of families are homeowners. But construction of multifamily units is growing faster than construction of single-family homes—a trend confirmed by the Census Bureau's report on residential construction.


One reason for the boom in multifamily construction is that rents have risen, making new rental projects more attractive to investors. Obviously rents can’t get too high or people will be turned off. In fact, a recent study said that the financial advantage of owning over renting is the biggest in at least two decades.

On the other hand, it’s hard to qualify for a mortgage. Plus, multifamily units tend to be smaller and cheaper than single-family homes, which is an asset for people who are scaling back. They also tend to be rented, rather than owned. The six-year-long crash in home prices has taken the bloom off the “ownership society” pushed by Republicans and Democrats alike: Renting doesn’t look as foolish as it did in the days when house prices were rising 10 percent a year or more.

True, multifamily units aren’t all rentals; some are condominiums. Conversely, not all single-family homes are owner-occupied; some are rented out. But those are the exceptions. America’s trend toward rental living is confirmed by U.S. Census Bureau data showing that in the fourth quarter of 2011, the home ownership rate was 66 percent-down from a peak of about 69 percent in 2004-06.

March’s report showed a 60 percent increase over the past year, through February, in construction permits for units in structures with five or more dwellings. That compares to a still-healthy 24 percent increase in construction permits for single-family homes. Two-thirds of permits issued were for single-family homes.

The chart below depicts the difference between after-tax mortgage payments and rents as a percentage of disposable income, according to data that Deutsche Bank compiled from the National Association of Realtors and the REIS Inc. information service. The chart displays fourth-quarter figures for 2002 to 2011 and annual data before then.

Mortgages cost 0.8 percentage point less in last year’s fourth quarter after being about the same as rents during the first three quarters. Home payments have been 3.1 points higher on average since 1991, analysts John Perry and Nishu Sood wrote in their report.

“Falling home prices and still-rising rents” accounted for the fourth-quarter gap, the N.Y.-based analysts wrote. The median price of a single-family house fell 5.8 percent in the quarter, while rent payments rose 0.5 percent on average.

Rents averaged 14.9 percent more than home-loan payments during the last three months of 2011, the report said. The gap widened from the third quarter by 8.1 points, and rentals were more costly for the fifth consecutive quarter.

Author: Peter Coy, Bloomberg Business Week