Shifting Trends in Renter Demand and Housing Choices
Housing experts agree that the most challenging housing market conditions in memory, which began to take hold on the national housing market, including Florida about five (5) years ago, had their genesis during the Carter administration and the Community Reinvestment Act (CRA). During the period from 2002 to 2006, fueled by inexpensive and highly leveraged mortgage financing, single family and condominium developers fed into a speculative market, and the resulting upward ratcheting of appraisal/valuation inevitably lead to a housing “bust” and the current state of affairs that the overall housing market is in today.
As a result of the housing “boom” the national ratio of owner occupied housing went from 66.2% in 2000, with a median value of $119,600, to 66.6% in 2007, with a median value of $197,600. Thus, while the ratio of owner occupancy remained relatively stable, in just eight (8) years, median “value” increased by 65.2%, or 8.2% per year. In 2009, the unwinding of the market became apparent, when the ratio of owner occupancy decreased to 65.9% and the median value declined by 6.3% to $185,200, or about the same as in 2005.
Since 2007-2008, the de-leveraging process in for-sale housing has been working its way through the market and currently roughly 4,000,000 residential units are in the foreclosure process. So, with the gale force of millions of homes in foreclosure and the disruption to their occupants, the actual reality of the apartment market is that a “rental market recovery” has officially occurred, with virtually all segments of the industry including investors, lenders, appraisers, developers and regulatory agencies embracing and acknowledging this fact. The resulting fact is that they are all now rapidly moving forward to “get back in the game”.
This shift from ownership to rental housing is anticipated to be the prevailing trend for the next five to ten years, not only because of the de-leveraging occurring, but also because the global and national economies must find ways to accommodate the fact that traditional housing consumers have fewer options to buy owner occupied housing and more attractive options to occupy rental housing.
In other words, the market environment of housing choices and options (the proverbial American Dream) has been replaced by necessity and affordability. As a result, over the past two to four years, the renter demand pool has increased significantly to bring existing rental occupancies up in almost all markets.
Most metropolitan markets have a general housing demand profile comprised of the following renter demand groups:
• Newly Formed Households
Singles, couples and roommates
• Maturing Households
Singles and couples
Gen “Y” and Gen “X”
• Mature Households
Couples – Aged 45-55
Baby Boomers and Gen “X”
• Semi- and Fully Retired
Couples – Aged 55-65
• Active Fully Retired
Couples – Aged 65-75
• Semi-Independent Senior Households
Singles – Aged 75+
• Dependent Senior Households
Singles – aged 85+
During the ±20-year period before the current recession, the large majority of households would have transitioned through rental housing into some form of owner-occupied housing by the time they became “maturing” households” in their early to mid-30’s (i.e., townhouse, condominium, and detached single family).
However, now a large proportion of rental households are comprised of households, who were renters as first time independent households, but who moved into single family homes as their families grew and household income increased. These households have now reverted to rental housing due to the recession and the newly adopted housing choices of these households. Now, the youngest generation of housing consumers, the so called Generation “Y” segment have been unable to move into that traditional path of home ownership.
Unfortunately, structural disruptions throughout the global, national and local economies are no longer able to produce the economic and financial abilities required by this group/segment for investment and financing opportunities, resulting in a broad range of personal and household economic “re-evaluations”. It has been roughly estimated that anywhere from 30% to 50% of the various household age-cohorts are making consumer choices to go into rental housing as “newly formed” households that are reverting to the rental lifestyle and housing alternative. Although they may be fully capable of affording well above starter rental costs and lifestyles, they no longer have the capacity to maintain their previously purchased or invested, housing expense acquired in the late 1990’s through early 2000’s.
Locations of Where 21st Century Renters Want to Live
For the past 50 years plus, households choosing to, or needing to live in rental multifamily apartments employed “consumer driven choice” consideration of what was affordable, close to their work, and close to their schools and resident services (shopping, banking, houses of worship, entertainment, transportation systems, etc.). Now, in the 21st Century, the consumer choice issues driving their choice of contemporary rental alternatives have shifted to new considerations, though many of the ageless considerations of affordability and convenience are still critically important.
The new 21st Century renter household is looking to new locations in mixed-use developments and urban locations offering broader lifestyle choices, closer proximity to employment centers and opportunities, mass transportation linkages, reduced vehicular dependence for everything and availability to more contemporary conveniences. The premiums of higher density, elevator serviced, midrise and highrise living, in higher quality construction products with structured or enhanced parking alternatives, as well as superior views of urban skylines or panoramic views, in lifestyles and settings which offer significantly more opportunities for “social networking” through new technologies and social behavior of today’s younger more technologically oriented social consumers.
Contemporary renter demand factors also continue to influence developers to produce new rental housing in and around major regional malls and in DRI’s, which offer housing, employment, schools, retail, and entertainment venues.
Michael Slater is President/Owner of Triad Research & Consulting, Inc. and has conducted substantial work in the multifamily housing segment of the real estate industry, both in the public and private sectors, through his diverse and varied positions in the industry over the past 37 years. Triad Research & Consulting, Inc. provides significant market research services to the multi-family industry and the senior living industries, including professional industry associations, large management companies, private and institutional developers, lending institutions, brokers, pension funds, REITS, and the RTC. For more information, visit www.triadresearch.net, call (813) 908-8844 or email [email protected].