There has been a shift in demand for rental housing due to demographic and other changes in our society.
During the digging deeper multifamily market outlook panel at the 2019 NMHC Apartment Strategies Outlook Conference here in San Diego, a panel of expert industry analysts, moderated by Mark Obrinsky, chief economist and SVP of research at NMHC, examined multifamily housing trends leading in to 2019. Topics discussed included which markets are experiencing supply constraints, Millennials, and where there opportunities still are for growth.
THE MILLENNIAL DRIVER
“We have had job growth which has been a big driver and really has helped the multifamily sector,” said speaker Kim Betancourt, director of economics and multifamily research at Fannie Mae. “Job growth and millennials have been driving demand for multifamily.”
The majority of multifamily renters are Millennials, about 29% of them, she explained. “If you go back to 2005, that number was only about 25%. That number, that percentage has grown.”
The same has happened in singlefamily rentals, she added. “We all think they are living in those micro-units, riding their bikes and such, but we have a whole bunch of them that are renting singlefamily.”
Millennials peak in 2025, but you will still have momentum after that, Betancourt explained.
HOUSING COMPLETIONS/APARTMENT VACANCY BY CLASS
“We are building much less housing today than the 70s and 80s,” explained Jay Lybik, VP of IPA research services at Marcus & Millichap.
Lybik explained that he has seen a dramatic shift in what has been happening in different asset classes across the country. While we look at overall vacancy, there is differentiation by class, he said.
“The class C vacancy rate is the lowest across the three classes, which is a dramatic shift—which we haven’t seen since back in 2001. The flip side is that we are seeing the class A space getting the majority of the upward momentum in terms of vacancy,” explained Lybik.
As for absorption, it has been much higher than in the 1990s, added Lybik. “There has been a shift in demand for rental housing due to demographic and other changes in our society. In particular, divorce rates among boomers has increased by 100% over the years which equates to a lot of demand for housing…a significant shift we have seen nationally that has led to an increase shift in outward demand.”
Everyone talks about those walking in the front door, but renter retention is trending upwards, which supports rent positioning, noted Greg Willett, chief economist at RealPage. “Last year, between 52% and 53% of residents stayed in place within their existing unit when their lease expired.”
There is a natural pattern among metros, places like Milwaukee, St. Louis etc., where you have an older rental base and fewer options to move around town, so markets of that tier have higher rental retention rates around 60%, said Willett. “But places like Salt Lake City, San Diego, and Phoenix are at the bottom of retention, around 45%.” The national average is 52.5% for 2018 in terms of retention rates.
Article by: Natalie Dolce | Globe St.