Madison-area apartment construction still booming madison wisconsin business news host.madison.com electricity projects for high school students

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If he could find the right place, offering high-end amenities and lots of professional services for comfortable, worry-free living — important to him because he still would spend days at a time in Oshkosh, living and working at the care facility — Grubofski was in.

And that’s how he came to rent a two-bedroom apartment at pool level with parking at the Domain, for $2,300 a month. He moved into the 12-story tower at Johnson and Broom streets when it opened in April, the latest in a string of luxury apartment developments built in Downtown Madison over the last few years offering features such as rooftop pools, spas and cafes.

“I would have paid a little bit more,” he said. “It was extremely important to me that this was luxury living. I travel a lot between the cities, and I don’t have time to mow a lawn. I’m not in Madison enough to own a home. Who’s going to take care of it? And to me, the more money I spend, the more amenities I should get.”

Now, more than three years into an apartment construction boom nationally and in the Madison area, the work is driven in part by a housing-crash hangover that continues to funnel increased numbers of people into multi-family living, whether by choice or necessity.

Unlike in 2012, the single-family housing market is no longer weak, with both newly built and existing homes seeing increased demand and better prices. Interest rates remain low — a plus for would-be homeowners, if their credit is good enough to score a mortgage under tighter post-crash financing rules — though costs for construction labor and materials are higher now.

But certain market challenges and unknowns inevitably raise questions and concerns. City officials know there is a strong need for more affordable rental housing, for lower-income workers who aren’t the market target for the high-end supply going in Downtown and in some hot-market suburbs like Middleton and Verona. They even have a plan to help developers add 1,000 such units over five years, starting with 200 approved for this year.

Many believe that’s still far down the road; others aren’t so sure. Steve Sosnowski, head of commercial lending for the Madison-area market for Green Bay-based Associated Bank — the state’s biggest bank — can site solid reasons fueling the apartment-market growth, chief among them Millennials looking for amenity-rich, well-located, but not too permanent, places to live.

To Gary Gorman, a local developer of both market-rate and more affordable housing, the boom in apartment construction is tied to the continued good fortune of one company — Verona medical records software giant Epic Systems Corp., where rapid growth in recent years has resulted in the hiring of thousands of young, mobile employees, many of whom want to live Downtown.

“I was on a panel where I was asked if a bubble was developing (in high-end apartments),” he added, “and I answered, ‘Tell me if (Epic Systems CEO) Judy Faulkner is going to keep hiring or not.’ If she does, the market is fine. If not, it collapses. To me, it’s that simple.”

Matt Wachter, a housing initiatives specialist for the city of Madison, has been studying census trends and other data for the past two years. He staffs a new city committee on housing strategy that has been looking into issues of affordability and the variety of housing types available in Madison, with an eye toward adopting best practices seen nationally and producing a housing report with practical recommendations every two years.

• Strong population and household growth rates. Unlike some other places, Madison grew even during the ‘07-’09 Great Recession, and that growth has reliably increased in the last five years, Wachter said, from a long-term rate of 1 percent annually to more like 1.5 to 2 percent. “There’s been no dip in growth,” he said. “There’s just more people coming here and that’s driving a lot of this.”

• It’s not just Millennials. While a majority of the newcomers are in their 20s and 30s, another big group are the aging, empty-nest Baby Boomers. What both groups share is they tend to form smaller households — singles or couples, mostly — so they are drawn to apartments over single-family homes.

• A reduction or correction in the homeownership rate. Nationwide, homeownership hit historic highs from the late 1990s to the mid-2000s. That ended with the housing crash and may not return soon or ever. “Some people who owned went back to rental who traditionally would have rented,” Wachter said.

In addition to those demand factors, a lack of adequate supply has helped trigger apartment construction, Wachter said. Between 2007 and 2012, during the recession and weakest part of the recovery, construction slowed so much that it couldn’t keep pace with the people arriving, Wachter said, producing a hole that builders and developers have yet to fully close.

City officials and many industry observers believe that’s true in part because of the oft-cited vacancy rate — a measure tracked by Madison Gas and Electric based on the percent of utilities either turned off or switched to owners in multifamily buildings — which has remained very low in recent years. The rate has been in the 1 to 2 percent range, with 5 percent considered normal, suggesting supply is more than being absorbed.

“Despite the (many) units we’ve put up, our vacancy rate hasn’t budged,” Wachter said. “We’re barely keeping up with demand. And assuming these factors continue, we’re going to keep building at this rate into the future. As long as we have a strong economy that attracts young workers, this is going to keep happening.”

Sosnowski noted the vacancy rate simply measures whether someone is living in a unit, not what it took to get them there. If a landlord had to offer a month’s free rent, for example, that could be an early sign of market weakening that the vacancy rate wouldn’t pick up.