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COVID-Related Population Migrations Within the U.S.

COVID-Related Population Migrations Within the U.S.

In 2019, multifamily investment reached $184 billion, the highest ever recorded, led by single-asset purchases, which are considered the best indication of investment momentum. That momentum was frozen by the start of the COVID crisis in the United States in the first quarter of 2020. Now entering Q4, trading and development are gaining steam once more and capital is available again, largely credited to Fannie Mae, Freddie Mac, FHA, and private investment. The government’s stimulus package with increased unemployment benefits in Q2 helped rent collections remain above 95% throughout the economic downturn.

The overall pandemic damage to the multifamily market has been much less than anticipated and is expected to recover as fast if not faster than it has in the wake of previous recessions. In the lingering absence of institutional and public investment, private investment has become more competitive with much of the pre-COVID appetite still evident. Some markets are back up to pre-COVID values while others are still showing a 2% to 4% reduction. While overall performance has remained strong, there have been shifts in population density that should be considered by anyone looking to invest in Q4 or early in 2021.

Regions and Markets Hit Hardest by COVID

Unemployment hit the leisure and hospitality industry hardest by a long shot, losing more than 48% of its employees between February and April, the three months that saw the biggest economic repercussion of the COVID pandemic. Las Vegas was the most significant casualty, shutting down in March for the first time since JFK was assassinated in 1963 and putting a major damper in Nevada’s $68 billion leisure and hospitality output. Miami, Florida also took a hit and Orlando’s market going forward is uncertain due to its reliance on entertainment and tourism. Other areas like the West Coast and Texas show a wide range of variations. Migration has slowed, but market dynamics mitigate losses. Some of the least affected sectors were government, healthcare, tech, and finance. Nashville, Tennessee, and Austin performed well because of their healthcare and tech centers.

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Migration Patterns

There’s been a measurable withdrawal from large metro markets like New York and the West Coast. The attraction of amenities in big cities has been muted by the shutdowns that made those amenities no longer accessible. Instead, there’s a growing demand for on-site rental property amenities. Millennials are starting families and seeking out more space at a lower cost, which they find in 2nd tier cities like Baltimore and Columbus, but migration from the urban high-rises and coffee shops to suburban backyard barbeques is tentatively expected to course-correct over the next few years. Data support the shift, but not in the extremes the media has been suggesting. Almost every state saw a decrease in moving. The states that did have an increase, which were mainly the states with no shelter-in-place or stay-at-home orders, saw increases in minimal amounts.

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Property Types

High demand and low availability for affordable housing are causing class B and C properties to outperform class A properties. Even though low-income families have been hit hardest by the effects of COVID-19 and have the least amount of cushion in unemployment situations, the lack of housing options has enabled class C property owners to raise rent while reducing vacancies. Existing tenants are staying in apartments longer due to their minimal options. This difficult situation is partially a result of property owners being backed into a corner by the eviction moratorium that prevented them from evicting non-paying tenants while the owners were still expected to pay their mortgages.

Class A properties, which made up the majority of new construction in Q1 and Q2, have seen increased vacancies but strong rent collection. The leasing process has been slowed and prospective tenants are budgeting much more frugally in the wake of this year’s economic crisis. Class B properties have seen an increase in occupancy, as well as strong rent collection. Class C is seeing lower vacancies, but weaker rent collections.

Many class A renters have second residences outside the city and have given up city apartments due to a combination of prudent budgeting and a reduced need to be in the city for work or amenities. Class B is expected to recover the fastest as millennial demand increases. Class C will likely continue to struggle without government intervention to increase employment and/or provide improved rent assistance.

Incentivizing Affordable Housing Development

Builders have to aim for higher classes in order to drive profitability. That’s always been true, but a change in the cycle has caused an even greater shortage of affordable housing. Usually what happens is class A apartments will eventually fall into class B and then class C. However, many class B properties are being upgraded to class A, which reduces the housing availability for both B and C classes. Builders know where the demand is and continue to attempt to meet it with housing that’s considered “attainable” rather than “affordable”. This housing offers a slightly higher rent than “affordable” levels. Many owners are active in tax-exempt bond-financed affordable housing programs. These programs require 20% of a property’s units to be designated as affordable housing with rent set at a percentage of the median income for the area. These government incentives are probably the only solution to the affordable housing situation.

Developers are Optimistic Going Forward

Projected new development is down slightly from previous years, but not by much. Development is expected to continue as planned until the existing supply runs out and lenders remain conservative in financing new development projects. Safe investments in stable metros will receive the bulk of the financing at that point. Over the next year, there will be increasing opportunity to begin new construction that will open in or after Q3 2022 when household formation and unemployment are expected to be back to pre-COVID levels.


Thursday, October 6th, 2022 At 7 PM ET


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