Harvard recently published a study regarding housing the United States. Topics covered included housing markets, demographics, homeownership, the rental market, and housing challenges. What are some trends, opportunities, and challenges that were presented in the study, and what does this mean for owners, investors, and property managers?
Housing Trends 01: Homeownership Down, Rentals Up!
Homeownership hit a low that’s not been seen in twenty years—in 2014, only 64.5% of people owned their home. This low trend reflected all age groups and causes are speculated to be the general fall of household income, and limited financing such as no good credit or existing loans such as student loans, which are steadily increasing. The rental market is hot right now—the vacancy rate fell to just 7.6%, its lowest in twenty years. As a result of this trend, apartment building prices are up and more people are paying more than 30% of their income for rent. These people spend so much on housing that they end up spending less on healthcare, food, and the economy. And renter household growth is continuing to climb! Recovery of the housing market has been steady but slow, and is likely to stay that way until income rates grow. This trend means more rentals are needed in this competitive market.
Housing Trends 02: Increase in Aging Renters, Minorities, and Young People
In the next twenty years, the population of adults aged over seventy will increase by 91%. This means more and more of your renters will be elderly and needing support. The need for apartments that are affordable and accessible is high—there needs to be supportive services for these elderly individuals. Many have at least one type of disability and live alone. Investors can take advantage of this opportunity to consider places where the elderly have access to proper support and affordable housing.
Millennials (those born 1985-2004) will increase in the rental market over the next twenty years. Many of these young people also have heavy student debt burdens, making it harder for them to save for a down payment on a house. Owners and property managers should expect them to remain renters for longer, therefore increasing the opportunity for more stable tenants.
The rental market is already a diverse industry, but it’s predicted to become even more diverse. The need for alternative housing that considers cultural preferences will increase. For instance, many diverse populations have large families and need space to accommodate family groupings. This could mean larger rooms or community areas, so keep this in mind when building.
Housing Trends 03: Rental Housing Demands on the Rise
Construction of units, especially multifamily units, has continued to increase—new construction of multifamily units is the highest it’s been since 1987. Although new units are generally built for the high end of the market, there is still a huge demand, and therefore an opportunity, for more affordable units. The average rent in 2013 was $1,290 for a multifamily unit. At this rate, 2/3 of renters could not afford this. Units can be made more affordable via new construction by decreasing energy costs (anything built after the 2000s has 18% less energy usage per square foot) and keeping up with maintenance via property managers.
Vacancy for properties that are managed by professionals with five or more units was very low at 4.6% for 2014. Properties managed by professionals are experiencing an increase in construction, but they have still not kept up with demands. The competition for affordable housing is competitive: the demand is rising, but vacancy declining. Rents are up all over the country as well, some places experiencing an increase of 10% or more in 2014.
Housing Challeges: Low Income
Challenging the rental market are low-income families who need affordable housing. Renters with large debts set a record in 2013, and minorities are more likely to have heavy debts. With housing costs on the rise, families are forced to spend more money on housing, meaning less money on other things. These families typically spent 70% less on healthcare, 40% less on food, and put away 52% less for retirement savings.
This high cost of housing does not promise a better or safer unit. Problems with housing affect 9% of renters compared to 3% of homeowners. While these problems have decreased for owners, they have not changed for renters. Every renter is looking for quality, affordable units, so make this a priority when investing or managing. Income growth is not on track with the pace of growing rents.
Effects of the housing crash and the Great Recession are still apparent, and affordable units are falling behind of demand. There’s an opportunity to provide better, more affordable units, a challenge with low-income families, and the trend right now is renting across all age groups.