Years of Underbuilding Leads to Demand for All Housing
On Thursday, February 27 nearly 100 members of the Columbus Apartment Association met at Brookside Country Club for the first of two General Meetings this year. Members were eager to hear what Andrew Mazak of Vogt Strategic Insights would predict during the annual Industry Forecast.
The program began with CAA Executive Director Laura Swanson welcoming members to the meeting before introducing CAA Board member, Noelle Smith, to discuss some of the education and membership initiatives for the Association. After Smith, fellow CAA Board member Carrie Sitterley detailed some upcoming plans for the CAA Community Assistance Foundation. Next, CAA President, Don Brunner welcomed new CAA members before introducing Mazak for the keynote presentation.
Mazak began with an overview of where the market has been and what its experience in housing over the last five years. Since the pandemic in 2020 there has been unprecedented change. “When we look at housing, there are obvious supply and demand components. Supply is the easier of the two to track, we can look at the number of permits issues, the number of construction starts and the number of completions to get a quantifiable number,” Mazak said. “Demand is a bit more nuanced, there are more unique characteristics. Since the pandemic started, we saw a ton of different preferences, specifically, rental by choice.
There was a significant change in migration from cities, the remote work environment allowed people to work where they chose leading to a migration away from cities and states with high costs of living to states more open to livability, housing and entertainment options. The pandemic led to a significant and immediate change in domestic migrations. A significant wage growth in the second half of 2020 and into 2021 increasing by over 6%, which also contributed to rent growth and general apartment demand. Leading to things being more expensive overall. From 2021 to 2022 the U.S. saw double digit rent growth. Meanwhile, overall inflation drove the prices of homes up with the median U.S. home price going from $275,000 in 2019 to over $400,000 today.
“What’s more interesting, with interest rate increases, the overall cost of home ownership increased by an average of 100%. Obviously, that helped fuel the demand for rental housing,” Mazak noted. “To nobody’s surprise, the conditions caused a challenge for people to move. The supply of homes available for sale dropped significantly. It made demand for rental housing go up, because it wasn’t as expensive as homeownership cost, and it was more available. We really experienced a huge lock-in effect, where people weren’t selling homes and weren’t moving.
In 2024, the U.S. as a whole saw the highest number of apartment unit completions that its seen in 50 years. Because interest rates went up so quickly in 2023 the number of apartment starts dropped significantly. There were projects coming online to be completed, but there is not a backlog of additional units being planned. The National Multifamily Housing Council (NMHC) conducts a quarterly survey on apartment market conditions, one interesting take away was that in 2021 and 2022 the most significant reason apartment projects were being put on hold was because of challenges of materials, sourcing and delivery and permitting. By June of 2024, NMHC the primary reason apartment projects was being put on hold was because of economic unfeasibility. Now, it’s trending in the other direction and people are starting to feel more positive about apartment development. 2024 ended with a difference of nearly 300,000 units, meaning there were 300,000 less new apartment starts compared to units completed. The last time this was the case was 50 years ago. “With all the new apartments coming online over the past two years we actually saw an increase in vacancies. Not significantly, but they are going up a little bit more. It’s probably going to start shifting because there was such a discrepancy last year in the number of new construction starts to units coming online. Those metrics are expected to change significantly,” Mazak said. “Analysts predict that 2024 was the worst year for apartment vacancies, hopefully, for the near future. With the limited supply coming online, it’s anticipated that the new projects coming online are going to be absorbed and filled up and vacancies will start to decline, and rents will start to go up again.
Specific to Columbus over the past five years, asking rents have increased, but not as much as the nation overall as Columbus has a large supply of units that has come online over the past couple of years. Columbus has been underbuilding for decades and there is a need for more housing overall across the country.
Vacancies are the highest among the newer products with the lower vacancy rates in the B product. Consequently, the percentage rent increase was the greatest among the B projects. In terms of asking rents and vacancies, there’s a direct correlation between pipeline. The University and downtown have experienced a lot of growth over the last five years, with their vacancy rates reaching almost 12%.
“As a whole, we’re still underbuilding both apartments and homes, with the continued demographic growth and economic growth that isn’t anticipated to change any time soon. It’s more of a unique factor of which product type needs to be focused on,” Mazak said. “Columbus had the larges number of permits issued for housing since before 2010. Columbus is continuing to grow and although vacancies are going up a bit, it’s interesting that despite all the new product is being absorbed. Downtown specifically, is going to take a little bit more time for those to fill, but in general there is still continued demand and continued growth.
Continuing to speak to downtown, Mazak noted that there’s still a significant amount of construction, however, the challenge is affordability, a lot of new product is the high-end market leading to a missing middle, a lack of affordable, workforce housing. This has led to the increased vacancy rate downtown and rent decline. There are still 1500 units under construction with thousands more in the planning phase or development. Employment is starting to return to in-office work which could lead to a positive impact on downtown units.
Based on trends and changes in renter preferences, Central Ohio will continue to see a tale of Suburbs vs City. With renters still wanting a sense of community and place while not necessarily wanting to live in the big city, new development can continue provide live, work and play nearby with differences in population density.
One thing that Mazak predicts will continue is the trend of build-to-rent single family housing. While Columbus is behind the trend, Mazak expects it to increase. With interest rates continuing to be high, it will fold renters into rental family housing as opposed to buying a house. As the area continues to grow, not everyone moving in will want to immediately purchase a home, it offers appealing options for those individuals. With the senior demographic continuing to grow, it’s leading to an increase in demand.
“Future predictions let’s try and forecast where things are going. We expect, VSI, that the pipeline is going to cause some vacancy, but not significantly. We’ll probably continue to inch up in vacancy rates in 2025, nationally, it’s predicted that by 2026 vacancy rates will decline and rents will go back up. Columbus, because of the new supply we have in development and under construction now and in the preliminary stages of planning, we’re probably going to continue to see growth and it’s likely that the vacancy rate will remain around 6%,” Mazak said. “There might not be as much rent growth in Columbus over the next year because of the increase in product. The Midwest in general is expected to increase by about 2.6%, rent growth in Columbus will not be as significant. To reiterate, Columbus has been underbuilding housing for many, many years. We need to continue to develop, it’s just a matter of what needs to be developed. We can’t build all high-end, expensive, market rate product. There needs to be product for those who are public servants, teachers, general workforce housing.”
After fielding a few questions from the audience Swanson returned to thank everyone for their time and encouraging them to attend a future CAA event.
