Influx of Renters Set to Drive Prices Up

With the decided lack of recovery in the Housing Market, one bright spot for investors is the Apartment and condo market. Right now, potential revenues from the rental market are projected to bring in over $1 trillion in capital with an additional ten million new apartment units needing to be built over the next ten years. Many people have decided to delay purchasing a home, and this has put enormous pressure on rental prices – especially over the last few years.

Renters make up more than 40 million households, or about one-third of US households. With every 1% increase in renters, that equates to a nearly 66% decrease in homeownership. A big contribution to this is the changing demographics. With a significant increase in immigrants, 20-34 year olds and baby boomers entering the rental market, this has led to a upward trend of rental prices across the United States.

In this upcoming year, another 1.4 million people will become renters, a 4% rise in the number of tenant households in just one year. US Homeownership has fallen about 1.5% over the last year (from 66.9% to 65.9% during the last quarter of 2011) and owner rates falling by 4.4% for those who are younger than 25. This data is showing that right now younger demographics are either unable or unwilling to make a home purchase and think it’s safer to rent.

Rents had been flat during most of the 2008 financial/housing crisis, but that trend is slowly reversing as reported by Freddie Mac – the government agency that tracks these statistics. It’s also been reported that new construction of buildings with at least 20 units has picked up and the highest since the end of 2008. New construction indicates a rising demand for rental units all over the United States. The low level of mortgage rates, improving apartment economics and return of traditional lenders have all helped a market that hasn’t been able to catch much traction during the recession.

In states with higher rates of foreclosure activity, the new influx of renters is staggering with nearly twice the national average in states like Arizona, Nevada and California. Some states like Ohio, West Virginia, Pennsylvania and Alabama saw significant gains in the number of renters with more than 6 out of 10 households added over the last ten years being from new renters. There’s no direct evidence however that the influx of renters is related to the housing crisis, but demand is certainly up in those states.

While geographical opportunities abound, people say that demographics are the way to lock up exciting revenue opportunities. Some demographics like people who are 35-64 contain more than 3 times the amount of homeowners who are under 35 years of age. However just because they own more homes than the under 35 crowd doesn’t mean 35-64 year olds aren’t looking for apartments either. Apartment managers report that nearly fifty percent of the time, it’s just as likely to be a middle-aged couple as it is a 22 year old fresh out of college looking for their first apartment.

There are plenty of places to make money with renters and the market is proving to be reliable across geography and demographics. The pressure on home ownership has created a high demand for quality rental units. With so many starts, and needed inventory, there’s plenty of money to be made!  

Leave a Reply

Your email address will not be published. Required fields are marked *