As the economy continues its recovery from the pandemic shock, key market dynamics should continue to support demand for middle-income rental housing in the long and short term. That’s according to a paper in the September issue of Institutional Real Estate Americas, co-authored by Peter Muoio, Ph.D., senior director at SitusAMC Insights; Russell Appel, founding principal of Praedium Group; Peter Calatozzo, principal at Praedium Group; and Cory Loviglio, vice president at SitusAMC Insights.
The paper analyzes post-COVID dynamics across the U.S. economy, including trends in employment, interest rates, manufacturing activity, the stock and bond markets, and residential real estate. Among these insights, the authors explore factors that could boost middle-income multifamily demand. Here are seven:
- While economic conditions are improving and mortgage rates remain favorable, potential homebuyers are now facing an all-time shortage of homes for sale, record-high price growth, and historically strict lending standards, which could all work to suppress the homeownership rate and keep many middle-income households renting.
- The number of 18- to 29-year-olds living with their parents surged in the aftermath of the financial crisis and remained stubbornly high above 45 percent for a decade. Amid the pandemic, this rate jumped to 52 percent in July 2020, an all-time high. As the economy continues to pick up steam, this elevated rate represents a pool of potential new renters as conditions improve and young adults begin moving out of their parents’ homes.
- Despite a pandemic-induced spike in home sales, the share of home sales to first-time buyers fell to 31 percent in 2020, according to the National Association of Realtors (NAR), the lowest level since 1987. Even if there were a desire for more space, many potential buyers remain burdened by lending conditions and economic hardship.
- The number of millennials who expect to always rent has increased from 10.7 percent in 2018 to 12.3 percent in 2019 to 18.2 percent in 2020, according to survey data from Apartment List, evidencing a structural and not cyclical shift in behavior among this age cohort. Prior to the pandemic, millennial homeownership at age 30 was just 35.8 percent, compared to 48.3 percent for baby boomers at age 30, according to the Stanford Center on Longevity. This highlights how middle-income housing demand is further shifting from buying to renting.
- In 2019 there were nearly 7 million U.S. households with annual income in the $60,000 to $90,000 range, accounting for significantly more renter households than higher-income bands that showed a greater propensity for homeownership.
- Student debt continues to soar, doubling over the past decade to more than $1.7 trillion, according to data from the Federal Reserve. While President Biden has expressed support for some student loan forgiveness up to $10,000 per borrower, attempts to cancel more per borrower are undergoing internal review, and no specific plans have been introduced. This massive burden continues to stymie many potential homebuyers, and even if some level of relief does come to fruition, the recession likely stunted many household budgets and potential down payments.
- As the health crisis recedes, more flexible work arrangements may persist post-COVID-19. This increased adaptation of work from home may lead to more time in and value placed on rental housing, which the authors believe will drive demand.