In this week’s issue, we explore recent employment data and its impact on multifamily.
This Week’s Top Headlines
We start off with the week’s multifamily insights and then dig deeper into what new employment data means for multifamily owners and investors. Let’s start with the top multifamily stories from this week.
- Ouch: Regulation from all levels of government accounts for an average of 40.6% of multifamily development costs — NAHB
- Ouch #2: According to some developers, their costs are up 50% due to interest rates and material costs rising — Miami Today
- Cap Rates: Will likely rise as interest rates increase, possibly through to 2023 — Globe St
- Apartment Rents: Average asking rents rose $19 in May to a record high of $1,680, but with a YoY deceleration by 40 basis points to 13.9%— Yardi Matrix
- SFRs: 13,000 new single-family rentals came online in Q1, up 63% YoY, and now account for 5% of the entire home building market, up from a 2.7% historical average — CNBC
- Construction: Multifamily builds in larger metropolitan areas saw sharp gains during Q1, while SFH saw an overall decline — Globe St
- Dallas: Has been the #1 multifamily development market since 2016 — TRD
- Getting Old: The median age of homes is now 39 years, compared to 31 years in 2005 — NAHB
Main Takeaway: Employee turnover and retention will be a growing challenge. Wages are rising rapidly amidst a red hot job market and rising inflation. Multifamily owners and investors should be actively considering new hiring policies and retention strategies as the battle for labor will continue in the coming years.
Story: The labor market has been seesawing over the past few years with unemployment reaching record highs at the onset of the pandemic, to now at record lows with remote work forever altering the employer-employee relationship.
With current record job openings, the labor shortage shows no signs of slowing, with some estimates seeing this lasting well into 2030, “mostly because the growth of the labor force is slowing.” This reality has multifamily owners and investors concerned. Here is an overview of the key macro trends that will affect our industry in the coming years.
With red hot inflation, salaries are going to have to rise to cover the ongoing increases in living costs. According to the Financial Times, “[w]ith roughly 1.9 vacant positions for every unemployed worker, there are also broad concerns that a prolonged shortfall of people willing to join the labour force will keep upward pressure on prices as employers are forced to continue raising wages and improving benefits in order to attract new hires and keep those already on payroll.”
For specifically multifamily, new data shows that over the past year the cost to multifamily developers of compensating employees increased by nearly 12%. This is compared to the overall employee compensation increase during the same period of 4.5%.
According to the Federal Reserve Bank of Minneapolis, employers are more and more turning to traditionally underutilized labor pools by “lowering job requirements, offering training, [and] helping workers overcome barriers. Those who have changed hiring practices report fewer challenges filling job vacancies.” Multifamily owners and investors will increasingly consider similar strategies.
Multifamily construction is on the rise, particularly in larger metropolitan areas where single-family home construction is slowing. In commenting on this trend, NAHB chief economist Robert Dietz said that “low rental vacancy rates and rising rents give multifamily developers confidence to continue building despite rising costs for land, labor and materials.”
Finally, overall employment in categories related to multifamily — residential construction workers, specialty trades, property managers, and lessors — is on a slight upward trajectory according to new government data.
Residential property manager job growth improved 3.1% YoY, with construction and trades also up 5.6% since February 2020.
Expert Take: “It is encouraging that contractors were able to add workers in May, but they will need many more to meet the increasing demand for infrastructure and private nonresidential projects…Despite steeply rising pay for hourly workers, job openings in construction hit an all-time high at the end of April, while the industry’s low unemployment rate suggests experienced workers are scarce.” — Ken Simonson, chief economist for AGC
According to Redfin, median monthly asking rents jumped to $2,002 for the first time in May, increasing 15% YoY. Growth is moderating, however, slowing down to a 15% increase, down from March’s 17%.