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5.8 million over 15 years. That works out to somewhere between
350,000 to 400,000 units per year, which is roughly in line with
the long-term average annual construction of apartments in the U.S.
Under our most optimistic scenario, we project that current home-
ownership trends will continue modestly and the homeownership
rate will decline by 50-100 basis points in each age cohort. This
might be the most likely scenario, given that the homeownership
rate shows little sign of stopping its decline. Under this optimistic
scenario, some 2.9 million renter households will be created over
the next five years, 6 million over the next decade and 9 million over
the next 15 years. The result would be roughly 600,000 new renter
household units per year, which is well above the 350,000-unit
long-term annual average for U.S. multifamily supply. If this scenario
comes to pass, then not only is the current level of development
not going to create oversupply, but unless new construction
increases, there will be a chronic undersupply. That could produce
continued outsized rent growth and exacerbate the problem of
affordability that is reaching crisis proportions in some markets.
Table 4
Renter Demand: High Projection
(Source: Census Bureau, Yardi Systems)
Table 5
Renter Demand: Baseline Projection
(Source: Census Bureau, Yardi Systems)
Table 6
Renter Demand: Low Projection
(Source: Census Bureau, Yardi Systems)
It should be noted that not all renters wind up in traditional multi-
family units. In fact, the fastest-growing share of the U.S. housing
market in each age cohort is single-family rentals (SFR). SFRs
have always comprised a much smaller portion of the rental market
than multifamily, but the share of SFRs has grown from about 5%
of the total housing stock in 1994 to about 7% in 2014, according
to the Mortgage Bankers Association. SFRs have grown steadily
since credit crisis. One reason is that there are a number of former
homeowners who lack the credit scores needed to buy a house but
still prefer the amenities and location of a single family home. Also,
the sector segment is growing due to the entrance of institutional
investors that have created a new business model that involves
buying and/or financing large numbers of single-family homes.
Traditionally SFRs have been owned and operated by small investors.
Demand by Age Cohort
Based on our calculations, demand for rental housing seems likely
to increase strongly for another decade or more. In order to assess
demand more specifically, however, it helps to understand the
demand by age cohort because people want and need different
types of housing at different points in their life.
By age cohort, by far the largest increase in multifamily demand
over the next decade will come from the 65+ group, the Boomers.
For example, if we use our baseline scenario, the 65+ group will
account for more than half of new demand: 1.2 million of the
additional 2.2 million rental units to be created over the next five
years and 2.3 million of the 4 million units to be generated over
the next 10 years. If we use our more optimistic scenario, the
65+ cohort will comprise 1.5 million of the 3.2 rental units to be
generated over five years and 3.1 million of the 6.2 million units
to be generated over 10 years.
Led by Boomers, Multifamily Demand to Remain Robust