Persistent Appeal
The outlook for Sacramento’s multifamily owners and investors holds promise. As more and more rentals in this Northern California city convert to condos, property owners and investor will benefit as rents slide upward.
Additionally, with single-family homes priced out of reach, condos will continue to provide a viable housing option for Sacramento residents, even as interest rates rise. For many Sacramento renters, a newly renovated condo conversion with fresh appliances, new countertops, and updated kitchens and bathrooms holds more appeal than a fixer-upper in a not-so-desirable location with almost double the price tag. As a result, Sacramento will continue to see condo conversion projects and new condo developments emerging for at least the next two years.
Downtown Living
City life gains popularity.
Forget the white picket fence in the suburbs. More people are choosing to move downtown, according to a new analysis from The Brookings Institution. The study used census data to examine downtown population, household, and income trends in 44 cities from 1970 to 2000.
During the 1990s, the downtown population grew by 10 percent–a marked resurgence after 20 years of overall decline. Plus, from 1970 to 2000, the number of downtown dwelling units increased a total of 8 percent, with a 13 percent increase in the 1990s alone.
“Those downtowns having attributes conducive to urban life–including a critical mass of jobs and amenities–have attracted increasing numbers of households, especially singles and childless families,” says Eugenie Birch, director of the Penn Institute for Urban Research and author of the study.
While renters continue to dominate the downtown housing scene, homeownership rates have more than doubled during the 30-year period, reaching 22 percent in 2000. And not surprisingly, the demographics have also changed over the years. Downtown dwellers are more racially and ethnically diverse than they were 20 years ago. Plus, downtowns boast a higher percentage of young adults and college-educated residents than the nation’s cities and suburbs. In 2000, 25- to 34-year olds represented about a quarter of the downtown population, up from 13 percent in 1970.
Still, the growth in downtown living remains small compared to the suburban market. Between 1970 and 2000, the 44 downtown markets included in the study had a net gain of about 35,000 units, while the suburbs gained a whopping 13 million.
–Rachel Z. Azoff
Condo Crush
For-sale supply takes center stage in multifamily markets.
Multifamily permits told an interesting story in the third quarter of 2005, thanks to a double whammy from the for-sale market. Although new construction continues to rise steadily, as shown in Marcus & Millichap’s supply index, the supply of rental units is growing tighter. Not only do condos and townhomes dominate the growth in new construction, they also are swallowing up existing rental stock with a flood of condo conversions, says Hessam Nadji, managing director of research services at Marcus & Millichap.
There’s only one blip on the horizon: When the for-sale market eventually softens, some conversions are going to revert to rental units. “What’s going to happen when the condo conversions come back on the rental market?” Nadji says.
But that’s unlikely to happen before 2007. In 2006, the dynamics of the apartment market should remain sound, Nadji says. Then, even as conversions start to revert to rentals, the shift should not cause big problems, he says. Only about 20 percent to 30 percent of condo sales are driven by investors and second-home buyers, who tend to switch to rental units when market conditions change. “There will still be a net reduction in rental stock, so it’s not that big of an issue,” Nadji says. “But it is a factor worth watching.”
–Nichola Zaklan