The Strength of the Multi-Family Market: Where Will It Go From Here?
The multi-family market has experienced several years of record growth as new supply is absorbed as soon as it enters the rental market, and 2017 and beyond look poised to continue this trend of strong demand for apartments across the country. Indeed, the National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) estimate that an additional 4.6 million apartments will be needed by 2030 in order to fill the demand for multi-family rentals. Why is the multi-family market so strong, and are there any factors that might inhibit the continuation of this record positive market cycle?
Deferred Home Purchases
Unlike previous generations, Millennials–the country’s largest generation–are much more likely to rent than buy. Major life events have historically driven home ownership; as Millennials delay marriage and children, home ownership also gets pushed back. In addition, the median age of first-time home buys is currently 31 years old. The bulk of millennials are still in their mid-20’s, with the three most common ages being 24, 25, and 26. Meaning most millennial won’t be buying homes for another five to seven years.
Record Household Growth
Based on healthy labor market growth, the number of households in the United States has also increased. Over the last five years, approximately a million households have been formed annually, and the majority of this record number of new households become renters.
An Aging Population
The number of Americans over 65 continues to grow, and as the population ages, these Baby Boomers are increasingly turning to renting rather than owning. Indeed, renters over 55 make up almost a third of all rental households, and this trend is expected to continue as more Americans enter their retirement years.
Increase in Immigration
About half of the U.S.’s population growth derives from immigration, particularly along the nation’s coasts. Since immigrants are more likely than non-immigrants both to rent and to rent for long time periods, this increased immigration will drive additional demand in the apartment rental market.
Potential Threat of a Downturn?
As strong as the multi-family market is, threats that could cause a downturn do loom on the horizon. Interest rates remain historically low, and the cost of homeownership is growing at a much lower rate than rents are. Combined, these factors could push some renters towards purchasing a home instead of renting.
However, both the for-sale and for-rent housing markets are able to perform well simultaneously, and the factors that drive apartment demand are projected to remain potent for the next 10 years. In light of this, the multi-family market appears to be poised for another decade of strength.