Demographics, Socioeconomics Driving Multifamily Housing Demand

Demographic and socioeconomic factors contributed to significant increases in demand for U.S. rental housing, reported Clarion Partners, New York.

The U.S. housing market is increasingly becoming a “renter nation,” Clarion Partners Managing Director and Head of Investment Research Tim Wang said in Renter Nation: The Rise of Multifamily Housing. “[We] believe that renters, both by choice and by necessity, will continue to escalate the demand for rental housing,” he said.

New renter households increased by nearly 10 million over the past 10 years, significantly outpacing the owner segment, which reported minimal growth, Wang said. “We expect steady growth in renter households to continue in the future,” he said, noting industry estimates anticipate another 500,000 new rental households per year through 2025.

In addition, the single population rose by a “whopping” 15 million above married couples over the past decade, Wang said. He attributed the shift in independent living to lifestyle changes in both younger and older U.S. households. “More young adults are postponing marriage, while older adults divorce more frequently,” he said. “All have led to a rise in apartment living, generally a more manageable expense and flexible living arrangement than a single-family home.”

The report said cost of living remains one of the most significant challenges facing many cities. “As U.S. housing prices have surged, wealth and income gains have been modest for most people,” Wang said. “These combined circumstances have led to the recent surge in rental housing demand. Nationwide, it is now cheaper to rent than buy in more than half of all counties.”

The report said the primary renter base comprises largely young adults, a group that holds the smallest share of U.S. net worth. “Consequently, the wealth disparity by age has widened and the financial demands of homeownership (such as saving for a down payment) are out of reach for many,” so they tend to continue to rent, Clarion said.

Student loan debt–which now stands at $1.5 trillion–represents a “unique problem” to the Millennial generation, the report said. The average student loan debt grew six percent year-over-year for the class of 2017 to $39,400. “Today, the average net worth of younger millennials is negative,” Clarion said. “A home mortgage requires top-tier credit and conservative debt-to-income ratios. The current system for rating credit and qualifying for a home loan may continue to be restrictive [thus deterring first-time buyers].”

Given the current U.S. demographic and socioeconomic environment, “there is rising interest in high-quality rentals across all price points and regions,” the report said.