Since the housing bubble burst back in 2008 there has been a steady decline in home ownership in the United States. Home ownership is the lowest it has been since 1967 according to CNBC. Yahoo Finance states, 59% of all households formed between 2010 and 2030 will rent their homes.
What this means for investors is higher demand for rental properties, which leads to an increase in rental prices. Higher rental prices cause the value of multifamily properties to increase. Below are some of the reasons behind this trend.
According to the same Yahoo article, 86% of American renters don’t have a sufficient credit score or income to afford to buy a home in their local market. This is a great statistic for buy and hold real estate investors. Especially as the millennial generation, which represents the largest demographic in the US with over 83.1 million people, move out on their own. Evidence suggests affordability will be a factor in a millennial’s choice to postpone home ownership. Instead, they are turning to renting as an alternative.
The second largest demographic in the US is the baby boomers, with a population of over 76.4 million. According to a study done by FreddieMac, a majority of those 55+ who plan to move are planning to rent their next home. Affordability is the number one reason for this change.
Flexibility and convenience
There is a huge trend in the millennial generation to stay flexible. Many will be moving to cities with strong job markets and like the flexibility that renting allows. In addition, these millennials enjoy the amenities, community, and convenience of renting.
There is also an element of cool that comes with working in one city for 2-3 years and then being able to pick up and go work in another city.
The baby boomers also enjoy the convenience of renting. They no longer wish to be responsible for the maintenance that comes with home ownership. Amenities and walk-able communities are also attractive to boomers.
The bottom line
The bottom line is that affordability, flexibility, and other factors are causing a decrease in home ownership. This is leading to increasing demand for rental units, which means increasing rent prices. Research shows that this trend will continue as the millennial and baby boomer generations age.
The coming years will be a great time to invest for those interested in multifamily. Investors will see strong cash flow and appreciating property values as demand for rental units grow.
There is an excellent podcast on this from the Real Wealth Network by Kathy Fettke. I highly recommend it if you are interested learning more about this topic.