What's Going on?

You can’t pick up a Business Journal or Charlotte Observer without reading about   all the apartment complexes either being completed, announced, sold, etc.  What’s going on?

One   indicator might be a recent article stating that an apartment complex sold   for $27.85 million and the seller originally stated their costs were $17 million.  Now let’s do the math, costs $17 million – sales price $27.85   million, with a difference of $10.85 million or 63.8% over costs.  Not   bad!  I’m sure none of these numbers are exact.  They haven’t been   confirmed or analyzed and I’m sure the costs were probably higher and there   were selling costs.  Nevertheless, this single example should point out   even to the uninitiated why there is such a preponderance of cranes in   Charlotte building multifamily.  Go figure.

What else is going on in terms of why there are so many apartments excluding the   obvious profit motive?

Well to listen to all the experts, there are a ton of Millennials coming along   who, for one reason or another, have decided that apartment living is the way to go.  Why are they choosing this?  The pundits are   telling us things like:

  •   They have more flexibility, they can move or go wherever   they want to go;
  •   They have too much student loan debt to do anything else;
  •   They’ve seen their parents lose money on investing in   single-family housing, therefore they’re sticking with the old tried and true   apartment model.

I   don’t know if some or all of this is true, I suspect as in anything there is   some degree of validity to each of these points.

To   further confuse and confound what is going on in housing markets, we keep   reading about how it’s a seller’s market for single-family housing and the   supply side is diminishing.  Add to this the experts that tell us   affordable housing is beyond those at or below the poverty level, not to   mention those in the “workforce housing market,” and we are left to try and   figure out how we’re going to house all of the Millennials, not to mention   Generations X, Y, and Z.

I have some thoughts on this.

What would happen if interest rates do tick up, as we expect they might?  How would that affect the sale of housing?  It will probably slow   down.  How will it affect apartment renters?  Well I suspect in the not-too-distant future the apartment markets are going to start offering   incentives such as free rent, reduced rents, perhaps a gift certificate to   one of the local breweries (the brewery explosion is another discussion), or   whatever perks and benefits the managers see fit to produce.

Others believe there will be a balance in the housing stock that is yet to be   discussed.  Clearly, there will be more of us that choose rental housing, but there will also be a continued interest and investment in   single-family housing.  The suburbs will continue to suburb and the   Millennials will continue to occupy the apartments.  However, I suspect   we are in a multi-family bubble and the development community is underestimating the long-term prospects for the singe-family market.

A lot of the experts would disagree with this assessment.  What do you think?

My recommendation would be to consider your current plight.  If you’re part   of the new, young urban generation, rent an apartment, ride your bike, and   perhaps store your automobile–go for it.  If on the other hand you’re   an aging Baby Boomer like me, you will probably continue to work longer than   you had initially thought.  You will attempt to, if you have not   already, pay off your mortgage, and we will all pray the younger generation   is somehow going to fund all this retirement  drain on the economy!

Have a nice day.