Building Science in Action

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Research & Trends Assessing the Impact of Millennials in Today’s Rental Market

By all accounts, 2015 is a very good year for the multifamily housing industry. Projected 2015 U.S. multifamily construction starts should top 455,000 units, or about $85.1 billion. That’s a 25 percent dollar increase over the torrid 2014 construction pace.

And 2016? Multifamily builders may throttle back a trifle, but only a trifle. The construction pace will still be frenetic. A surging rental marketplace – especially apartment-hungry Millennials (born 1982-2004) – will keep occupancy and rental rates high.

If anything, the stars have aligned like never before for multifamily builders. Mounting evidence reveals:

  • 50 percent of Millennials rent. That’s up from 37 percent just five years ago according to the Urban Land Institute.
  • The factors driving Millennials to rent – declining wages, student loans, delayed marriage, tight credit, recession hang-over, and declining interest in owning property – aren’t going away anytime soon.
  • New renters will outpace new homeowners through 2030 says the Urban Institute. It’s expected only 38 percent of Millennials will own a home by 2030. Compare that to the 46 percent of Baby Boomers who owned homes in the 1990s.
  • The national rental vacancy rate in 2Q 2015 was 6.8 percent, down from 7.5 percent a year earlier. Eighty-eight percent of property managers report raising rents in the past year.
  • Family formation, often viewed as a key driver of home ownership, peaked in 1980. It’s been in decline ever since.
  • Homes owned by 35- to 44-year olds will nose dive from nearly 68 percent in 1990 to just over 55 percent by 2030.

For the multifamily construction trade, the news could hardly be better. As Tim Sullivan, practice leader for Meyers Research LLC says, “Multifamily left single-family in the dust five years ago.” Another industry watcher seconds Sullivan’s stark conclusion. “Younger people, especially Millennials, are waiting longer to get married. We have renters who are staying renters,” reports Greg Willett, vice president of MPF Research.

The Harvard Joint Center for Housing Studies released a report last June that declares this decade will be “the strongest decade for renter growth in history.” The growing conclusion for local, regional, and, yes, national home builders? Follow the dollars. Some production home builders have already placed big bets:

  • This summer Lennar announced a $1.1 billion joint venture that will build and hold apartment communities in 25 U.S. metro markets.
  • Toll Brothers has 17 multifamily projects in play (6,596 units) with a value of $2.2 billion.

As one regional home builder expanding their business into apartment construction puts it, “We are actually providers of shelter. Apartments are a large component of shelter.”

If you have all you can handle keeping up with new home orders, congrats and keep it up. If you’re looking to diversify your portfolio of construction services, as many home builders are, now is a great time to explore your multifamily options.

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