A recent Harvard University study released highly promising information for commercial multifamily investors. Four key trends are driving the multifamily sector to historic levels and investors are receiving superb returns as a result.
1) Homeownership Plummets while Renters Increase. Dramatically.
Homeownership levels (the percentage of households that own vs. rent) fell at record levels last year. This is the 7th straight year of homeownership decline and this trend will continue for the foreseeable future.
In 2012, the percentage of Americans who own a home was at its lowest level in 15 years.
At the same time 1,000,000 new renter households entered the market.
The multi-year view highlights an even more dramatic shift in homeownership. Since 2006, nearly 4,000,000 new households have shifted from homeownership to renting.
This is a historic trend that shows no sign of reversal.
2) The two largest generations in history are driving the rental surge
The two largest generations in US History are driving the dramatic shift in renting versus owning. The Baby Boomer generation is beginning its expected trend of decreased homeownership. The Echo Boomers, or Generation Y, are not becoming homeowners as quickly as previous generations and in many cases are walking away from homeownership altogether.
This demographic surge is fueling record growth in the multifamily sector of commercial real estate.
3) New Apartment Construction Lags
Last year, only 225,000 new rental units were completed. Yet, current demand requires more than 800,000 rental units every year for the next 10 years and beyond. This significant supply/demand imbalance is driving up occupancy and rents in almost all markets across the United States.
4) Shrinking Vacancy, Rising Rent
Increased demand coupled with shrinking supply has caused vacancy rates to fall by 2% in many major markets in the past year alone. As a result, rent is rising by nearly 5% in many areas. This is double the rental rate increase from 2011.
No End in Sight
It is no surprise multifamily investors are seeing excellent appreciation and increased cash flow from their assets. As a result of the long-term demographic trends and the behavioral shift away from home ownership, multifamily investors can expect a decade or more of safe, dependable returns.