Despite challenges posed by rising home ownership rates and increased regulatory barriers in many local markets, the outlook for the U.S. multifamily rental sector remains generally strong, according to a new report from NAI Global, the world's premier network of commercial real estate firms.

The research cites population growth as the most critical component fueling multifamily demand, and forecasts about 2.5 million to 3.0 million newly constructed units, about 180,000 to 215,000 annually, through 2020. Declining vacancy rates and affordability, combined with rising mortgage rates, will also support anticipated construction. "When analyzing the multifamily sector, people have a tendency to view rising home ownership rates as a harbinger of long-term weakness. However, our research suggests otherwise," said NAI Global President & CEO Jeffrey M. Finn. "Even in a world of low-money-down mortgages, affordability remains elusive. Many would-be buyers simply lack the savings for even a modest down payment and have begun to look warily on the exotic products some lenders offer. This is particularly true in high-barrier markets. Where development is difficult due to regulatory restrictions, long-term rentals occur by default."

The report also points to an aging multifamily inventory as a driver of demand for new supply. In recent years, as more Americans have sought the benefits of home-ownership, multifamily construction projects have declined. The resulting shortfall will be addressed through a proliferation of new developments and the rehabbing of existing properties over the next 14 years. Overall demand for home ownership will continue to increase, as there are inherent advantages to owning vs. renting a home. Chief among them is the "dividend" associated with owning one's home - the value of the comfort, enjoyment and satisfaction one derives from living in it.

Home ownership also insulates the owner from inopportune rent shocks, which is particularly attractive to lower- and moderate-income households. "The federal tax deductions homeowners get are less of a factor than one would expect," Finn added. "Landlords deduct these same payments from their federal taxes and in most markets these deductions are reflected in lower market rents." According to Dr. Linneman, current housing inventories are about 360,000 units too high. However, adjusting construction to reduce the surplus is not likely to harm the U.S. economy. While a slowdown in homebuilding causes fear on Wall Street, "It is an economic non-event," he noted. "This reduction amounts to $50 billion to $80 billion over the next year. If this were the only factor occurring in the economy it would knock just 0.5% off the growth rate, from 3.2% to approximately 2.7% in n 2007."