Suburban Multifamily Building Expansion: The Persisting Increase in Suburban Apartment Complexes Construction
Michael H. Zaransky is the Founder and Managing Principal of MZ Capital Partners, a distinguished multifamily investment and development firm that has received multiple accolades.
Following the two-year surge in multifamily housing construction, the sector has decided to pause for a moment. With 900,000 units being delivered, which is the highest number since 1973, multifamily operators are concentrating on completing and leasing these properties before focusing on new constructions.
New construction has decreased in various markets, but this decrease is most noticeable in suburban counties, as per the National Association of Home Builders. However, this does not mean that the growth in suburban multifamily housing is declining or stopping altogether.
The market may be experiencing a temporary cooling period, but its long-term indicators are still strong, and the suburban resurgence that started during the pandemic is not slowing down.
Here's why I believe that suburbs will continue to attract a diverse and mobile workforce looking to establish a new form of suburb, featuring the perks of urban living along with more space and lower density.
The Suburbs are Getting More Diverse
Majority of Americans live in the suburbs, a trend that has remained constant for decades. However, what has changed is the demographic representation of suburbs, which has become significantly more diverse since 1990.
According to a thorough study conducted by the Brookings Institution, people of color have been migrating to suburban areas in large numbers since 1990. In 1990, people of color accounted for 20% of suburban residents, while in 2020, they made up 45%. Brookings referred to this transformation as "the melting-pot suburbs."
The study concluded that the traditional image of post-World War II American metropolises, which were primarily white and surrounded by relatively homogenous suburban areas, has begun to shift as racial and ethnic minorities have grown in size and spread out into the suburbs.
Furthermore, the study highlighted a potential long-term demographic change. The 2020 census data showed that more than half of suburban residents under 18 identify as people of color. This new generation of diverse young people growing up in suburban areas could lead to the growth of these communities in the future.
The Suburbs are Succeeding
Despite some companies mandating return-to-work policies post-pandemic, hybrid work, telecommuting, and remote work continue to thrive. According to a 2023 study conducted by Pew Research, 35% of workers who can perform their jobs remotely are doing so. Although this number is lower than during 2020-2022, it is significantly higher than the 7% who worked remotely before the pandemic. Pew reported that 14%, or approximately 22 million people, of the U.S. workforce is now fully remote.
Remote work has given rise to "Zoom Towns", which are places where remote workers have migrated to find cheaper housing, more space, or preferable lifestyles. This shift has driven up property values and prices by as much as 36% in "low-density suburbs of large markets" and rural areas, as per a study conducted by Harvard’s Joint Center For Housing Studies.
These housing trends have contributed to a substantial increase in suburban multifamily construction, which was among the fastest-growing sectors in 2021, according to the NABH. Demand has slowed down in 2024, as reported by the NAHB, but is expected to rebound once those units are fully leased and more renters join the population.
If property prices in suburban areas or "Zoom Towns" do not decrease, demand for multifamily housing may rise again, particularly in the growing "built-to-rent" market that caters to young families looking for a transitional living solution between renting and owning.
The Suburbs are Revitalizing Community
In 2000, authors Andres Duany, Elizabeth Plater-Zyberk, and Jeff Speck criticized the suburbs in their book "Suburban Nation: The Rise of Sprawl and the Decline of the American Dream". They described suburbs as being filled with "soulless subdivisions", "antiseptic office parks", and "mile upon mile of clogged collector roads". In their view, these were "residential ‘communities’ utterly lacking in communal life."
However, I believe that today's suburban residents are reclaiming the concept of community. Young renters are willing to pay higher rents if they feel connected to their fellow renters and share common spaces, which smaller suburban multifamily properties facilitate.
Suburban retail is also expanding, and residents are utilizing the new shopping and dining experiences that have become available. Additionally, the suburbs are becoming more urban in character, at least in terms of culture and lifestyle.
Urban planners are now embracing the concept of suburban retrofitting, which involves transforming decaying or poorly designed suburban spaces into practical, urban-like environments. These communities blend living and commercial spaces into high-density areas with greenspace and pedestrian-only streets.
I believe that "Retrofitting Suburbia", a 2009 book updated recently, is an excellent guide for investors seeking insights on this trend. The book provides case studies demonstrating how suburban communities can be revitalized through retrofitting, reducing water and energy use, encouraging walking, and animating previously dull spaces.
The authors of the book argue that suburban retrofitting can address the concerns of the millennials and Gen Zs moving to suburban areas, such as improving public health, increasing resilience in the face of climate change, leveraging social capital for equity, supporting an aging society, competing for jobs, and disrupting automobile dependence.
Developers are transforming deserted shopping malls into medical facilities and office complexes into lively, mixed-use areas. Furthermore, Kittleseton & Associates advocates for suburban makeovers to bridge the gap in affordable housing by offering additional choices.
In an attempt to address the issue of skyrocketing city rents and property prices, urban dwellers, particularly millennials and Gen Zs, are exploring renting in the suburbs. However, young remote workers opting for suburban life still seek a balance between urban conveniences. I think our rejuvenated suburbs should continue to cater to this demand by offering homes with simple access to bustling city centers and amenities such as high-end dining, shopping, and entertainment.
I am convinced that multifamily properties in suburban areas that offer these benefits will continue to maintain high occupancy and rental rates. Embracing the suburbs once more is now acceptable, thereby contributing to their ongoing expansion.
As for Our Website Business Council, it serves as the leading platform for the growth and networking of business owners and leaders. Am I eligible to join?
Michael Zaransky, as the Founder and Managing Principal of MZ Capital Partners, has played a significant role in the multifamily investment and development sector, which has seen growth despite temporary pauses.
Given the diversity of suburban communities, Michael Zaransky's firm could potentially seek investment opportunities in suburban markets that cater to the needs of a diverse workforce.
