Dear CPI Capital newsletter subscriber,
The multi-family apartment sector continues to attract considerable attention from savvy investors who realize that the fundamentals for this type of real estate are as strong as ever.
The sector has been one of the primary beneficiaries of the decade old economic expansion and remans supported by several key demographic trends:
- The biggest challenge for many “aspiring” homeowners is affordability
In reality, nowadays in the US, many people simply can’t afford to own their own homes. In the 10 years from 2008 to 2018, the average home sales prices rose almost 32% across the US, according to data from the National Census. However, average household incomes rose less than 6%. In certain fast-growing areas, price rises have been even greater. The result? Many aspiring new home owners have been prevented from entering the market. Despite ongoing economic expansion home ownership rates have actually declined in many areas across the country, as economic well-being hasn’t benefited all. The obvious alternative if you have been priced out of the market and can’t buy? Multi-family.
- The so-called “Silver Tsunami” means ever increasing numbers of retirees looking to rent
By 2035, almost 35% of US households will be headed by a person over the age of 65. Many of the estimated 79 million retirees across the nation have a strong preference for renting, usually after cashing in ownership of real estate they have accumulated over the years. “Modern” retirees are often active adults looking for an urban environment and seeking to rent for flexibility and/or avoid the costs and hassles of home repairs. Enhanced mobility also means they can spend time during the year in different places. Therefore, significant increases in the number of “baby boomers” retiring, combined with longer life expectancy, can only boost demand for multi-family rentals. In fact, the largest increase in numbers renting in the decade following the financial crisis (2007–2017), were people over 55 according to Census data.
- Millennials have a different approach to home ownership
The Millennial generation (the generation born between 1981 and 1996) have been involved in changing or “disrupting” many traditional ideas or ways of doing business—and the way they occupy real estate is no different.
- prefer to live in urban or city areas where acquisition costs are relatively high and new home supply limited;
- as a result of their high levels of debt, often carried over from their college days, have reduced affordability to purchase property; renting may be the only option for some;
- are more likely to get married (if at all) and have children later in life, two significant events typically associated with home ownership;
- have specific purchase requirements which are hard to fulfil.
In short, compared to previous generations, millennials are more likely to rent property. There’s no doubt, therefore, that the combination of changes in demand brought about by affordability, retirees and millennials are changing the way more and more people in the US are being forced to think about housing.
Multi-family investors, developers and operators who are able to capture the demand from these evolving demographics should be well positioned to enjoy long term-gains. At the end of the day, people need a place to stay, irrespective of the state of the economy or the rate of inflation….
– Ava Benesocky,
CEO, Co-Founder CPI Capital
– August Biniaz
Chief Strategy Officer, Co-Founder CPI Capital