5 Game Changers for Building and Development in 2018

The most important real estate market trends for multifamily housing in 2018, especially given tax reform

By MARY COOK

Game-changers, especially in the housing market, can be devastating — a lesson learned from the 2008 mortgage crisis. A decade later, another major game-changer is coming our way, thanks to the Tax Cut and Jobs Act (TCJA) — the first major tax code overhaul the U.S. has had since 1986. So the start of a new year brings an obvious question to mind for builders and developers: What will be the most important real estate market trends for multifamily housing in 2018, especially given tax reform?

1. TCJA Will Spur Multifamily and Multi-Use Development

Tax reform will give multifamily housing and mixed-use development a bright new future, notes market research firm Reis Inc. That’s because it roughly doubles the standard deduction to $12,000 (or $24,000 for married couples), but limits new home mortgage interest deductions to $750,000 of debt. At the same time, state and local income and property taxes are limited to $10,000. The higher standard deduction creates more disposable income and boosts the hospitality and retail markets that turn multifamily housing into mixed-use developments, but the lower cap on interest deductions eliminates incentives for growing families and wealthy Boomers to buy homes.

However, this is a welcome game-changer for builders and developers, since the multifamily housing market of last year became more and more saturated. After all, the community spaces, amenities, and model home interiors we designed for multifamily housing and mixeduse developments then were game-changers that raised occupancy rates. As tax reform encourages renters to move to bigger and/or better apartments or multi-use developments rather than become homebuyers, this trend will endure.

2. Affordability Will Become A Decision-Making Feature

Even though market forces will increase rents, affordability is critical. Because Millennials are burdened with student debt, they have postponed buying homes and having children until recently, while Boomers are living longer, more expensive lives. Tax reform will spur these cohorts to rent, along with Generation X’ers who no longer benefit from buying larger homes. At the same time, costs for land in prime locations, building materials and labor are going up — all deterrents for ground-up development.

To meet all these generation’s needs with functional, flexible, sustainable, and affordable homes — even at the luxury level, where residents will expect great value for dollars spent — builders and developers will need to focus on designing and delivering projects that embrace the fundamentals of good design. Units must be attractive, and also highly functional, efficient, flexible, and resilient. Planning and development must start long before projects break ground, with interior designers on board to focus building programs on resident wants and needs, budget parameters, design issues, amenities, and possibilities at the front end of a project to yield targeted solutions and avoid costly design mistakes.

3. Health & Wellness Will Spur Occupancy Rates

There are two sides to this issue: builders and developers must design and build sustainable structures that won’t compromise residents’ wellbeing — while also packing them with amenities and features that will foster healthy lifestyles. For the former, using environmentally friendly building materials is no longer an option — it’s mandatory today. Renters of all ages make decisions based on a development’s level of sustainability, which has become a selling point today. Whether it be insulation, finishes, paint, adhesives, flooring, textiles or furnishings, materials must be non-toxic and sustainable. Also, structures must be durable, low maintenance, and built with renewable, recycled, recyclable or salvaged materials that use no volatile organic compounds (VOCs), fungicides, or biocides.

For the latter, thanks to the advent of specialized studios and ever-evolving new training methods, developments must foster wellness with offerings that go far beyond the traditional fitness center, weight room, outdoor walking trails and pools. Builders and developers must develop a diverse and magnetic lineup of fitness offerings, which requires them to know their targets (which are often multigenerational today) and plan wisely. With limited space, fitness areas must be designed to maximize versatility. This will increase usability in the short term and allow offerings to change as trends shift, as the group fitness options of today are sure to be different tomorrow.

4. Design Will Be Used To Foster Connectivity & Community

Renters are searching for amenities that make residences feel like true homes, according to a recent survey by national property management company Village Green. Builders and developers have focused on offering the latest and greatest services and features in their projects to attract residents — such as high-speed access and Wi-Fi, which have been residents’ top two considerations in making rental decisions, according to a recent Comscast survey.

Common areas, amenities, and public spaces must be designed to strengthen the connection between residents by fostering community. However, this is easier said than done. Creating this connection calls for analytics that anticipate residents’ current and future activity needs, designers to craft mutable, multifunctional spaces that encourage residents to linger longer and come more often, and community managers to plan, execute and monitor programming to maximize and optimize resident usage. Activities that aren’t well attended must be reimagined and revamped to nurture community — and increase occupancy rates and profitability.

It’s critical for model home apartments to showcase sustainability and highlight possibilities, from the use of eco-friendly materials and abundance of day-lighting to flexibility of floorplans and integration of outside space.

5. State-Of-The-Art Technology Will Become Essential

Technology has already changed the way we communicate, work, conduct personal business, shop, meet, entertain, and furnish our homes. And technology is only going to become more mainstream and pervasive because it improves resident’s lifestyles and engagement. And many buildings and developments are using personalized apps for leasing, property management, sales, maintenance, security, concierge services, pet care, fitness classes, car sharing, entertainment, facility usage and more. When or where there is an identifiable need for a new technology, be it software or bespoke hardware, landlords must fill it or risk losing tenants to forward-thinking developments that stay on top of tech.

Mary Cook is the founder and principal of Mary Cook Associates (MCA), a full-service commercial interior design firm. She may be reached at www.marycook.com.