As institutional investors continue to purchase and hold single-family houses as rentals, the market for apartments in traditional multifamily buildings will likely feel repercussions, according to AXIOMetrics Inc., Dallas.
But exactly how much "is difficult to quantify," said Ron Johnsey, president of AXIOMetrics, an apartment data firm. "Historically speaking, there is a relatively high correlation of more than 66 percent between single- and multifamily rental vacancy, suggesting that the impact of economic and market fluctuations affects both rental markets similarly," he said.
Looking at more recent history--2003 and forward--that relatively high correlation falters, Johnsey said, "suggesting that single-family rentals and multifamily apartments are weak substitutes."
Johnsey pointed to an improving economy and resulting housing boom to explain the change. "[Between 2003 and 2006], single-family rental vacancy increased, whereas apartment vacancy decreased," he said. "The move to buy houses during that period reduced the number of those renting single-family homes, leaving more of the rental-housing inventory vacant. At the same time, employment gains allowed the apartment market to reduce vacancy through increased rentals."
But when the Great Recession hit, apartment vacancy increased sharply while single-family rental vacancy decreased slowly, in part because foreclosed homeowners rented single-family houses. "After the housing bust, apartment owners grew increasingly fearful of increased competition from single-family rentals," Johnsey said.
By the end of 2009, apartment market fundamentals...