August 21, 2014 – Globe St.

By Carrie Rossenfeld

ORANGE COUNTY, CA—We saw it during the recession out of sheer necessity, but industry experts say now we’re seeing it for a different reason: apartment dwellers doubling and tripling up within the same unit in Orange County. Bill Wilhelm, president of R.D. Olson Construction, tells GlobeSt.com that during the downturn, the poor economy and suffering housing sector were to blame, but today it’s because rental rates are rising—particularly in the apartment communities with state-of-the-art common amenities—and tenants are willing to sacrifice some space and privacy in order to live affordably in these communities.

Breaking down the cost of living in a class-A apartment among two or three individuals allows them to live in a nicer property that goes for a higher per-month rental rate, says Wilhelm. “We’re also seeing it in student housing. Where we used to see two or three individuals in an apartment, we have a property that has four or even six beds in some rooms. They’re stacking beds to be able to fit more tenants.”

The solution works with newer, higher-quality properties, but some class-B landlords are finding that tenants still aren’t biting, says Wilhelm. “In some situations, landlords have not been able to get the rates they thought they were going to get. From a renovation/construction standpoint, we’ve seen a couple of projects where the developers were trying to raise rents by $500 to $1,000 a month and add amenities. But the older buildings aren’t able to pull that off.”

Even in some of the more exclusive regions of Orange County, like Newport Beach and Costa Mesa, simply adding amenities to older buildings is not enough for tenants to justify the higher rents, says Wilhelm. “If the property doesn’t have enough characteristics to feed what tenants are lolling for today, it’s too costly to do a renovation and upgrade.”

When will the multifamily-unit bubble burst, he asks? “There are different statistics, even across the board. Some individuals think we’re there, others think we have a little ways to go and others think we have a long way to go. It comes back to geographic location.”

It’s too early in the game to know if the doubling-up trend will impact multifamily design, Wilhelm adds. “I don’t think there are enough studies to try to answer that yet. If you increase unit size, is the market going to allow you to charge more? On the flip side, you can keep the same size units and make the bedrooms a little larger, but shrink down some of the living areas. But you don’t really want to go there because that’s what’s selling. Lifestyle living is what people are looking for today.”