The California single-family housing market is expected to grow slowly through 2020, but the multifamily housing market will continue to be strong.
According to research released from the University of California at Los Angeles Anderson School of Management, the single-family housing market reflects the national forecast for slowing economic growth as discussion of the possibility of a recession persists. On a positive note, a recovery in the housing market likely will begin in 2021.
In California, new housing construction has dipped significantly in recent months.
In the state, residential housing permits issued at the city and county level dropped slightly more than 12 percent when compared to the same period in 2018. Part of the decrease has to do with the rising construction costs, which reflects both the expense of materials and labor.
As a result of the decline, construction projects are being placed on hold or developers are nixing them altogether.
This downward trend is impacting where California needs to be in terms of housing for all sectors – and, the state is quickly falling behind legislators’ target of constructing 3.5 million new housing units by 2025.
Multifamily housing growth is steady, however, partly because the rental market is so strong. This is especially true for the high-end rental market.
Builders are most interested in constructing luxury multifamily housing, such as city high-end multi-floor apartment buildings. This is driven by costs; luxury apartments capture a higher percentage of construction costs than modest ones. However, increasing the number of luxury apartments is not consistent with the state’s goals to boost affordable housing numbers.
Despite low unemployment and the growth in wages over the past couple of years, the rate of homeownership has slowed. It is no secret that California’s high home prices negatively affect the percentage of people who can afford to buy a home. This allows for the rental market to remain largely unthreatened and strong
How Millennials view homeownership and renting play a role in the rental market as well. A high percentage of Millennials still are choosing to live with their parents, because they are burdened with student debt from the high cost of a college education. Millennials also are waiting longer to get married, and in turn, the rising age of marriage is affecting the home market.
Although these factors are contributing to housing market trends, when Millennials are in a financial position to move out, they are choosing to rent apartments rather than buy homes. The choice clearly affects the market for rentals and the needs for single-family homes.
Murfey Company is a leader in single- and multi-family housing real estate development and construction. To learn more, visit www.murfeycompany.com.