Las Vegas Property Management Blog, the G-Gram

What's Happening To Smaller Multifamily Rental Properties In The United States?

Monday, February 18, 2019

During the 1970's and 1980's it wasn't uncommon to find smaller multifamily rental properties in Las Vegas or elsewhere in the United States.

These properties typically have 2-9 units and are often perfect for new investors because you can live in one unit during the early years when you're getting started while renting out the other units.

Fast forward to 2017 and construction of smaller, multifamily rentals had almost ground to a halt in the United States because, only 27,000 were built compared to a record 288,000 which were built in 1972.

Where Are All Of The Smaller Multifamily Rentals Going?

One of the big reasons why we're seeing fewer small multifamily rentals being built nationwide is because there's less of a demand than before since more renters these days want amenities and they also want to live closer to the city.

Much of the shift has to do with the rise of no-growth, not-in-my-backyard politics since the 1960s. This political movement has been strongest in homeowner-dominated suburbs, and as a result, as BuildZoom chief economist Issi Romem showed in a remarkable study earlier this year, almost all the housing construction in expensive, space-constrained coastal metropolitan areas such as Boston, Los Angeles, New York, San Francisco and Seattle is now happening in and around established urban centers. The residential suburbs of these areas have effectively gone dormant, shunting new construction to the neighborhoods — mostly in or near old urban cores — where the neighbors either don't object (because they're in commercial buildings) or don't have much political clout (because they're low-income renters), and local elected officials see benefits in a growing population. In such places, big apartment buildings generally make more sense than duplexes. Also, as barriers to new construction — land costs, labor costs, permitting costs, zoning rules, Nimby opposition, etc. — have risen, the threshold project size needed to turn a profit has increased even in less expensive metro areas.

Another factor is that limited partnerships, limited liability companies, real estate investment trusts and the like have taken over from individuals as the dominant players in multifamily housing, and these institutional investors tend to be more interested in (and capable of) developing big projects than in building fourplexes here and there. Non-individuals owned 71 percent of all rental units in multifamily buildings and 94 percent of those in buildings with 50 or more units in 2015, when the Census Bureau last asked around, and those percentages have been rising since at least 2001. It’s apparent in the above charts (especially the third one) that the shift from small multi-unit buildings to big ones accelerated after the mid-1990s, which happens to be right after the Resolution Trust Corp., the government entity charged with cleaning up the aftermath of the savings and loan crisis, went to great lengths to create an institutional market for such properties.

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