When it comes to housing statistics, pinpointing actual demand, particularly when extrapolated to a specific market or asset type, can be beguiling. At the macro level, apartment owners have enjoyed a recent surge in prospects who are readily converting to leases, helping to power the multifamily industry out of a real estate recession and drive occupancies and rent levels to historic highs. In fact, vacancies are expected to hit all-time lows in 2012 of around 4.5 percent, according to the NAR, while national rent growth is pegged at anywhere from 3 percent to 7 percent (depending on the source) over the next several years.
Still, unemployment continues to remain high, and household creation is all but stagnant, so the question remains: Where are all of these new renters coming from, and will they keep on coming as rents rise in a dour employment scenario? The answers depend on one generation—Gen Y—and its job prospects and propensity to raise families.
“I think the cake is baked, and we’re looking at primary rental demand over the next decade coming from Gen Y, loosely defined as people born between 1982 and 1995—and there are 45 million of them,” says Ron Johnsey, president of Dallas-based apartment research firm Axiometrics. Virtually all apartment owners and operators agree and have tailored both their product type (see “Design Demands,” on page 39) and marketing programs (see “Marketing Tug-of-War,” on page 38) to lure apartment-hungry Gen Y consumers.
Take it while you can get it, say single-family housing experts, who expect Gen Y to cycle out of the rental market as wage growth stabilizes and mortgage lending loosens against a backdrop of expected rent increases. “Right now, our mortgage system is broken, and there are people who are renting now because they can’t get a mortgage, but they’ll become more interested in buying a home over time, as they’re more able to put together a downpayment,” says Kent Colton, a former CEO of the NAHB and co-author of ?Housing 360, a survey of some 3,005 homeowners and renters conducted in October 2011 to measure interest in homeownership.
Data from Housing 360 back Colton up. The survey found that despite the recession and housing crisis, 29 percent of renters—up to 2 million potential home buyers—are considering buying a home in the next two years if financing capabilities improve. In fact, the survey found that 59 percent of renters already think now is a good time to buy, with 35 percent of them naming the inability to score a mortgage or put together a downpayment as their major impediment to purchasing.
“All of the data, both anecdotal and hard fact, point to a reluctance among consumers to buy a home right now,” agrees Hessam Nadji, managing director of research and advisory services for Encino, Calif.–based multifamily investment services firm Marcus and Millichap. “You have incredibly low interest rates that are very enticing, and home prices that are at multidecade lows in terms of overall affordability, yet people are not buying homes because they can’t qualify for the loan or they’re afraid of further deterioration of that investment.”
Johnsey warns that, should a general recovery and stabilization of the for-sale housing market occur, it could come at a time when the Gen Y demographic is cycling into another critical period affecting its purchasing decisions—that of creating a family. “Rental housing isn’t built to raise a family—it’s not that lifestyle. At some point, a portion of renters opt to have families and become homeowners,” Johnsey explains. “The average age for having a child is 27. So while Echo Boomers [Gen Yers] are ages 18 to 27, the overall multifamily rental market, beginning with student housing and university co-located apartments, followed by traditional market-rate rentals, is expected to be very robust. But we see a single-family housing boom by 2020, as more Echo Boomers get married and start having children.”
Others aren’t so sure. “The country is on the cusp of fundamental changes in our housing dynamics—preferences are driving more people away from the typical suburban house and toward the type of lifestyle that rental housing offers,” says the NMHC’s Bibby. “Families with children made up more than half of households decades ago, but they made up only one-third of households in 2000. By 2025, they’ll be closer to one-fifth. By 2025, singles and unrelated individuals living together will make up 40 percent of households.”Which could spell yet another boom in the share of U.S. households that opt to rent versus own their home.