Are Multifamily Homes the Housing of the Future?

Owning a single-family home was once considered the American dream. But with the rising costs of housing and construction, more and more people are enjoying the benefits of multifamily homes, including condo and apartment living. Whether to save on housing costs or take advantage of living in a community setting, people are gravitating toward this type of residence over single-family homes. 

Here’s what to expect with the multifamily home production trend.

What Is Multifamily Housing?

A multifamily home is a residential building that houses more than one family. Duplexes, apartment buildings, and condo buildings are all widely recognizable examples of multifamily housing. The residential units may be situated side-by-side, like townhomes, stacked on top of one another, or a combination of the two, like apartment complexes.

Benefits of Multifamily Homes for Consumers

Multifamily homes are on the rise for a number of negative reasons, like a low supply chain and high construction costs. But home buyers can enjoy several benefits by opting for a multifamily residential unit compared to a single-family home.

Affordability

Units in a multifamily building may be smaller than a single-family home, but that also means the cost to buy is typically lower. Buying a multifamily housing unit is an especially attractive option for people living in big cities, where the cost for a single-family home can be extremely expensive.

Less Outdoor Maintenance

Many homeowners dread the weekly chores of mowing the lawn and weeding the garden. Fortunately, living in a multifamily housing unit typically means you have fewer responsibilities outdoors. Most buildings hire local lawn care services to help maintain a tidy yard, or they may consult with local landscapers for low-maintenance gardens. 

Either way, buyers and renters living in the building don’t have to break out the weedwhacker (although you can certainly grow a garden on your patio or balcony if you’re itching to exercise your green thumb!). 

More Availability

The big benefit to a rise in multifamily home production is that builders can fit multiple residences in one building. It’s efficient, and it means there are more multifamily housing units available on the market now. If you’ve been searching for a place to come home and seem to be coming up short, consider looking at condos, apartment units, or townhouses.

Benefits of Multifamily Homes for Investors

For investors considering building or buying multifamily properties, there are many benefits. This real estate option can generate high cash flow and quickly grow your investment portfolio with just one purchase.

Easier to Finance

Purchasing a multifamily housing complex may cost millions of dollars, but it can be surprisingly easier to obtain a bank loan for this type of building compared to a single-family home. That’s because it has the potential to generate a high amount of money per month (more on that later!).

Grows Your Portfolio of Investments

If you want to purchase real estate for investment purposes, a multifamily building may be worth the high upfront investment. You can obtain multiple units with the purchase of one building, making the buying process simpler than it would be to buy multiple single-family homes in different locations.

Offers High Cash Flow

Even if some of the units in your building are vacant from time to time, you’ll have a large cash flow coming in from the remaining units being rented by tenants. The cost of a multifamily building can be high, but it also means you will collect rent payments for multiple units, creating a higher cash flow compared to a single-family home.

The Multifamily Home Production Trend

So how did we get to such a notable increase in multifamily home production? This trend isn’t just by chance; a number of factors have influenced the demand for multifamily residential units.

The Housing Shortage

Even people who aren’t searching for a home right now know the market is intense. A shortage of single-family homes has made many potential home buyers put their dreams on the back burner. The COVID-19 pandemic created an increased demand for homes, which also put a strain on construction supplies as more and more people looked to renovate or build homes.

Construction Costs

Building a house is a costly investment, but supply shortages and high demand for single-family housing amid the pandemic has made prices even higher. The average cost to build a home is around $287,000, or about $100 to $500 per square foot.

“Construction costs are rising too quickly, which threatens housing affordability conditions in 2022 as interest rates rise,” says Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Georgia, said in a press release.

Home buyers may be able to save by purchasing a unit in a multifamily housing unit instead, which explains some of the increased interest in these types of residences.

Supply Backlogs

In February 2022, single-family homes that received permits for construction but had not yet began reached a four-month high, likely due to supply chain issues for building materials. While it typically takes about six months to build a home, supply backlogs have made delays common. Homeowners should expect about three months of delays.

For those who don’t want to spend the better part of a year waiting for a home to be built, they may turn to the more readily available supply of multifamily housing units.

The Thriving Multifamily Housing Sector

The trends are clear: Multifamily housing production is on the rise. As of February 2022, multifamily housing starts, meaning new building projects, increased 9.3%, according to the NAHB, while single-family housing starts increased 5.7%. 

Multifamily housing isn’t for everyone, but it does have perks for those looking for a single unit or even investors hoping to buy an entire complex. Expect to see more friends, family, and colleagues considering multifamily housing options, either for living or investing in, in the near future.