Riding a Sea Change in the Economy: It’s a Renter’s World
The housing bust of 2008 evolved into an apartment building bonanza. Across north Alabama and extending into Georgia, Tennessee and South Carolina, Fyffe Construction’s multifamily developments ride high on the wave.
Chestnut Trace is a new Fyffe Construction complex in Tuscaloosa.
“A home is supposed to be our ultimate evidence that in America, hard work pays off and responsibility is rewarded,” President Barack Obama said in a speech last August, expressing a political maxim that may be as outdated as the New Deal.
Since the housing bubble burst, home buying is no longer considered an indisputable path to building equity and wealth. Home ownership — the cornerstone of the American Dream — has been lifted off its foundation and turned around like Dorothy’s farmhouse in “The Wizard of Oz.”
Higher interest rates and higher prices have made homes less affordable for a significant segment of the population. In the first quarter of 2014, home ownership fell to one of its lowest levels in nearly 20 years, according to the Census Bureau.
Many would-be homeowners are opting to rent, and for the economic recovery, it’s net positive, says economist Robert Dietz, of the National Association of Home Builders.
Construction companies that have thrived since the housing collapse are those like Fyffe Construction Co. Inc., which has followed full circle the cycle from single-family housing dream to full-blown apartment reality. Fyffe, headquartered in the north Alabama town of the same name, was founded in 1971 to build single-family homes. Yet today, Vice President Coy Murray says “easily 80 percent of our business is straight up apartment buildings.”
Murray points out that multifamily construction is attractive from the contractor’s standpoint for the reduction in cost per unit. It’s both a profitable business and a manageable one, he says, if you do the increased homework the increased scale demands.
“About every construction company started with single-family homes,” says Murray. “Apartment developers have a lot on the line. It’s a big investment, so they’ve done thorough research and market studies on the regions they’re in.”
Fyffe’s multifamily complexes vary in size and type, with the developer picking the size, Murray says. Fyffe started out building smaller complexes and has now built projects up to 200 units.
Huntsville, Scottsboro, Fort Payne, Guntersville and Mobile are a few of the many Alabama cities and towns where the company has constructed multifamily projects in recent years. Fyffe has other types of projects, Murray notes, but it expects to see the bulk of its business in multifamily. The company is currently negotiating such work for 2015-2016 in Alabama, Georgia, Tennessee and South Carolina.
“Apartments have been good to us; an easy fit for our company. The demand for multifamily housing has definitely been there and it appears that it’s going to continue for some time.”
Multifamily housing construction rose by 182 percent between 2009 and 2013, compared to a 39 percent rise in single-family production, according to the National Association of Home Builders. There were 307,000 multifamily units started in 2013, with a 10 percent increase in the second half compared to the first half of the year. In the first half of 2014, the number of multifamily starts reached 342,000.
Multifamily starts in Alabama have lagged the country as a whole, but Alabama production will outpace the national average as multifamily starts in Alabama catch up with the nationwide recovery, says Michael Neal, senior economist at the NAHB.
“The growth in multifamily housing starts nationwide reflects a return to normal and not an overbuilding,” Neal says. “Going forward, we expect multifamily starts nationally to remain between 350,000 and 360,000, reflecting this return to normality.”
That shift to a new normal was reflected in a recent AARP article, “When Renting is Better Than Buying.” Forget the social stigma associated with renting the author advises. That model has changed.
Murray agrees that the growth in multifamily construction will not end soon. And because of the sea change in ownership, he expects to see a growth in upscale expectations in rental properties. High-end multifamily housing assumes developments that are solidly built, energy efficient and designed to meet specific demographics and needs.
Many of the developments Fyffe has been building recently are for seniors, he says, with amenities accommodating older residents. “There was a lot of assisted living work in the 1990s, and we’re seeing it come back,” Murray says.
Each type of multifamily project has its own nuances, he notes, but all multifamily housing is built in a similar manner under similar codes. “We’ll see more apartment buildings that will last longer and give you lower utility bills. The multifamily housing market is getting better for the apartment dweller,” says Murray. “Not only will apartment dwellers have more options, they’ll have better options.”
Jessica Armstrong is a freelance writer for Business Alabama. She lives in Auburn.