Housing Continuum III – Mid-Range Multifamily/Rental

Housing Continuum

The Housing Continuum

Link to previous articles:

This article is the third in a series examining the housing market dynamics represented by what we call “The Housing Continuum”, as illustrated in the chart above.  The first article introduced the Housing Continuum concept.  The second article described the Entry-Level Multifamily/Rental segment. In this article, we explore the dynamics of the Mid-Range Multifamily/Rental segment.

Mid-Range Multifamily Renters

Mid-Range Multifamily/Renters have typically moved into their current home from entry-level multifamily, though some professionals may have the financial means to move into this level of housing immediately after college.  Renters in this segment have typically had some advancement in their career and thus can afford a rental home that is nicer than entry-level.

Renters at this level may be single, but are more likely to be two-income couples, as the combined income gives such households more ability to step up their housing from entry-level. They are more likely to be in their 30s, and their mid-range home is likely to be their third or fourth apartment home since they moved out of their parents’ home or finished school.

It is also common to find roommate situations in this segment, as it is more likely to contain 2-bedroom/2 bath units more suited to shared housing than the older properties typical of entry-level multifamily.

Characteristics of Mid-Range Multifamily Housing

Following are some of the characteristics of this housing segment:

  • Homes are typically larger than entry-level multifamily.  Bedrooms are more spacious, and typically there is also more storage space.
  • Properties typically have  a project amenity package better than that of entry-level rental properties.  This upgrade may manifest itself as either a function of quality (larger pool, nicer clubhouse, more activities, more exercise machines in exercise room), quantity (more amenities and services), or both.
  • Properties typically have a better package of unit amenities as well. Kitchen appliances are typically newer, or of better quality
  • Properties are more likely to be newer and have better locations than typical entry-level rental. Better location may mean a better school district, a safer neighborhood, or closer to resident services/nightlife.
  • A larger percentage of mid-range housing than entry-level housing consists of townhouse units (townhouse units are those where the sleeping areas are on a different floor than the living areas).
  • Mid-range properties sometimes substitute large units with plenty of storage space for fewer project amenities.  Such larger units with a full amenity package would be considered upscale.

How the Economy Typically Affects Mid-Range Multifamily

Due to its placement on the continuum, mid-range multifamily properties and renters are pulled in several directions. First, and most important, mid-range multifamily is typically the biggest support base for entry-level home ownership. Households in this sector are a little older, and as their economic circumstances improve and they start having children, they find themselves within step-up range of single-family housing.

The easy credit and good economy of a few years ago that produced the housing bubble created problems for the mid-range multifamily sector. In some markets, households left this sector for ownership faster than they could be replaced by households moving up from entry-level housing.  However, as credit has tightened and the economy slowed, multifamily performance in this sector has generally improved, as fewer households are leaving mid-rage rental for home ownership.

This sector is also the primary support base for upscale rental. As a result, mid-range properties must closely monitor rents at nearby upscale properties. A rent increase that places a  mid-range property’s rents too close to higher-quality upscale properties may have the effect of increasing  move-outs.  That same increase may also bump the rent out of step-up range for lower-price, lower-quality housing options, thus decreasing move-ins.

Just as with entry-level rental, households can “stall” economically at this level. In addition, households leaving home ownership situations due to foreclosure often still have the economic means to step-down to mid-range housing instead of entry-level housing.

Another loss factor for mid-range multifamily properties is households leaving to rent houses.  Households in this range are often in their late twenties/early thirties and are starting to have children.  Given the tightening of the credit market, buying a single-family home may not be an option for these families who are outgrowing their apartment. With more single-family rentals on the market due to foreclosures, renting a single-family home is increasingly likely to become a more popular option for families who feel crowded by multifamily, but who do not qualify for a mortgage.

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