The U.S. residential rental sector—undersupplied in many markets—is starting to experience a surge in demand, which is being fueled by a convergence of consumers in different sets of circumstances: people who lost their homes to foreclosure during the housing market collapse; would-be owners who soured on homeownership due to the collapse and are choosing to keep renting; and entry-level “generation Y” (Gen Y) workers entering the housing market, according to panelists at ULI’s recent Real Estate Summit at the Spring Council Forum in Phoenix, Arizona.
“Too many people bought homes [during the housing boom] who could not afford to keep owning. There is pent-up demand from Gen Y, plus there is very low turnover in the apartment industry right now,” said Douglas M. Bibby, president of the National Multi Housing Council. “It’s the great trifecta [of demand drivers] in the rental market.”
Constance B. Moore, president and chief executive officer of BRE Properties, Inc., predicted that the housing pendulum is not likely to swing back toward homeownership in the near term. “We should not underestimate the change in psyche [as a result of the housing collapse and home foreclosure crisis]. People’s view of homeownership has changed,” she said. Rather than viewing renting as “throwing money away,” many consumers now view owning as “throwing freedom away,” Moore noted.
In addition to the housing fallout, the higher rental demand reflects the changing needs and desires of a much more mobile society—one in which many are likely to change jobs, housing, and spouses more frequently, she said. “A 30-year mortgage, 30-year job, and 30-year marriage does not work anymore. . . . We are seeing a shift toward people wanting the nicest apartment, not the nicest condominium or house.”
With renting the only option for so many consumers, particularly those who lost homes to foreclosure, the stigma that has often been associated with renting (as in renters being less connected to the community, less apt to vote, etc.) is fading, noted Jack Hannum, vice president of Transwestern. “Once you lose a home, you are in no hurry to go back and try to buy again,” he said. “People are focused on quality of life . . . they are ready to ease into an apartment and have their appliances maintained by the landlord.”
Rising demand for apartments is reflected in the 2011 National Apartment Report from Marcus & Millichap Real Estate Investment Services. Panelist Hessam Nadji, Marcus & Millichap’s managing director of research services, provided highlights from the analysis, pointing out that all 44 U.S. metropolitan-area markets tracked in the report will post vacancy declines and rent gains in 2011. According to the report, this year will mark the first across-the-board reduction in apartment vacancy rates since at least 1990. In addition, the report notes that new supply will fall “critically short” of demand this year, with apartment completions expected to total 53,000 units—46 percent less than in 2010. “Significant tightening” is already evident in the rental market, with even more expected in the near term, Nadji said.