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CRE Finance World Winter 2016
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Table 14
Home Ownership Rate 1965–2015
Source: U.S. Census Bureau, Bloomberg.
The Urban Institute forecasts that homeownership will continue
to decline for at least 15 years. The downtrend would push
homeownership below 62% in 2020, and it would hold the rate
near 61% in 2030, below the lowest level since records began
in 1965. The lower home ownership rate has resulted in a larger
potential renting population.
New multifamily construction has been concentrated in the luxury
sector. Amongst the 370,000 multifamily rental units completed
from 2012 to 2014 in 54 U.S. metropolitan areas, 82% were in the
luxury category defined as attracting rents in the top 20% of the
market according to CoStar Group Inc. In certain US metros such
as Atlanta, Baltimore, Denver, Phoenix, and Tampa virtually all new
apartment construction has been in the luxury sector
6
.
Renting in America’s largest cities is becoming more expensive. In
many of the 11 largest US cities studied in a recent NYU Furman
Center/Capital One report, new rental units are not being added
as quickly as new rental households. This has caused considerable
apartment rental rate increases in these 11 markets and limited
affordability. Whereas in 2006 only Miami, Boston, San Francisco,
Los Angeles, and New York were majority renter markets, in
2013, Washington, DC, Dallas, Houston, and Chicago joined that
category as well.
There has been a surge in demand for moderately priced apartment
rental housing and because most of the new product is luxury,
older housing is not getting cheaper as newer housing is being
built. In fact rents in class B multifamily properties are growing
faster than those for class A multifamily
7
. Demand is not limited to
the prime renter age population. According to the Federal Reserve
of Kansas City, “Adults in their 50s and 60s accounted for most
of the increase in the actual number of occupied multifamily units
both before and after the housing crisis. Older adults (ages 50-69)
accounted for most of the increase in multifamily occupancy from
2000 to 2007 and from 2007 to 2013, and nearly all of the net
increase over the two periods combined”
8
.
Which Habitation Sectors Will Benefit from the Demographic,
Social and Economic Trends?
The combination of the growth in the size of the prime renter
age population, the growing prevalence of singlehood, the growth
in the 65 plus age segment, and the economic stagnation of
certain sectors of American society will lead to further demand
for multifamily housing.
Most multifamily subsectors should benefit from the current and
projected demographic social and economic changes in the United
States. The same economic changes that are inflicting pain on
the single-family home market are benefitting multifamily housing.
Demand should
continue to grow
in both the luxury
and moderately
priced segment
of the multifamily
housing sector.
The concentration of wealth in the upper income and wealth sectors
of American society is fueling demand in the luxury apartment
sector. The relative lack of construction in the moderate priced
multifamily segment proportionate to demand has resulted in
increased rent levels for the moderate priced sector as well.
Areas with Demographic Growth of Prime Renter
Age Population
As noted earlier in Table 3, there are certain metros that are
forecast for significant Compound Annual Growth Rates (CAGR)
in the prime renting age population over the next 15 years. These
metros include Raleigh (3.8%), Austin (2.7%), Charlotte (2.4%),
Orlando (2.4%), Phoenix (2.4%), Las Vegas (2.1%), Atlanta (1.9%),
Dallas-Ft. Worth (1.8%), Houston (1.8%), Palm Beach County
(1.7%), San Antonio (1.5%), Salt Lake City (1.4%), Denver (1.3%),
Nashville (1.2%), and Jacksonville (1.2%). These CAGRs are
significant when considering that the expected CAGR for the PPR
54 is 0.6%.
Trends Impacting Habitation Alternatives
“Real median household income...
has not recovered back to the level
achieved in 1996.”