Small Buildings Still Dominate Apartment Renter Shares

While a majority of apartment renters continue to live in small properties, renter growth in this property class is facing headwinds from large asset oversupply and rental incentives.

Distribution of U.S. Renters Across Property Types

In our recent blog, we noted a market-wide shift in the U.S. occupied rental inventory towards large apartment buildings and single-family homes. Meanwhile, small buildings displayed inventory consolidation toward higher income assets with a slight uptick in vacancy rates.

Rental units accommodate individuals to varying degrees due to a range of unit sizes, diverse household types, and living arrangements.

As shown below, multifamily properties (5+ units) accounted for 37% of the nearly 105 million U.S. renter population in 2016. This was slightly lower compared to the share of occupied unit inventory at 45%, as discussed in a recent blog examining the increased role single-family rentals are playing in the U.S. housing landscape. As we will explore below, this shows that single-family rentals tend to have more people living under one roof than in an apartment unit.

Of this, small apartment properties made up 28% of the renter population. This share was three times that of large buildings, but smaller compared to the 45% share in single-family homes.

As shown below, the number of renters per unit decreased with building size. Single-family rentals, typically larger and preferred by families with children, house 3.1 persons on average. This figure can be compared to only 1.8 persons in large apartment buildings, which are more popular with single renters. Small apartment buildings, which blend apartment living with more unit space and cater to diverse household segments, come in at 2.2 persons per unit.

Renter Growth Reflects Apartment Inventory Shifts

As shown below, the growth and shift in renter demand broadly mirrors the underlying supply-side trends. The small property renter base declined at an annual rate of 1.6% over 2015-16, in contrast to an increase of 2.3% over the previous year.

This decline comes in the context of a large property inventory supply glut across the largest U.S. metros, which has helped fuel a renter population growth of 5.6% in this asset class over 2015-16 — nearly double the rate from last year.

Going forward, small properties need to position themselves with higher quality products to benefit from the eventual resolution of the supply glut. This can be done by investing in building repairs and upgrades, and including green updates, which are now supported by Fannie Mae and Freddie Mac financing.