Reasons for Shift in Housing Occupancy (B)

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01
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Part
01

Reasons for Shift in Housing Occupancy - 2010s

Two insights surrounding reasons for shifts in property occupancy during the 2010s are a fundamental change in how people view renting and the change to a renewed desire to live in urban cities. Details of these insights are below.

Shift to Renting

  • One of the biggest shifts in property occupancy during the 2010s is the shift from owning to renting.
  • The national occupancy rate for apartment rentals was 95.8% as of the second quarter in 2019, which is the highest occupancy rate since 2001.
  • May 2019 saw the highest single monthly absorption rate for apartment units at 119,605 since 2010.
  • The main reason for the shift to renting is that according to Draper and Kramer President and CEO Todd Bancroft, "Renting has become mainstream during this decade... There's less of a stigma. Feeling at home is now possible in an apartment. Before the recession, that [was] less true. Apartments were where you lived before buying a home. The push for homeownership was more important then."
  • Additionally, the recession called into question the long-held idea that owning property as a savings vehicle and "the investment component of single-family houses has been challenged."
  • Even though the shift to renting has been attributed to millennials, experts say the perception of renting has been altered for all generations, including baby boomers. Cushman & Wakefield Managing Director Todd Stofflet stated, "The idea of renting because you can't buy is gone, and not just among millennials."
  • The shift to renting has spurred apartment development and in May 2019, in order to meet the demand, more than 426,000 units were under construction in the United States.

City Living

  • Occupancy rates are highest in urban cities, which is a result of the shift toward renting rather than owning property.
  • CBRE Global Chief Economist Richard Barkham stated, "Part of the reason for urban growth is that so much good-quality multifamily has been developed in those places, and the cities have fed on that."
  • There has been a focus on developing residential areas within urban environments, which has led to more livable places in cities.
  • Additionally, there has been an influx of companies moving to city cores, which has created demand for employee housing near their offices.
  • Moreover, these employees are often "younger people looking to live in cities to take advantage of the entertainment, restaurants and transportation, among other amenities found there, which in turn grow as the population seeking them grows.
  • Unfortunately, this shift has also led to the affordability issue, as there "isn't enough workforce housing being developed." Most of what is being developed is Class-A housing, which is more of a luxury product than the typical worker can afford.
  • Marcus & Millichap National Director-National Multi Housing Group John Sebree said that much of this problem can be attributed to a "change in attitude among municipalities that has favored more expensive apartment development."
  • The city cores that dominate in terms of the lowest vacancy rates are New Haven-Milford, Connecticut (1.8%); Akron, Ohio (2%); Cape Coral-Fort Myers, Florida (2.4%); San Jose-Sunnyvale-Santa Clara, California; (2.5%); Hartford-West Hartford-East Hartford, Connecticut (3.1%); Denver-Aurora-Lakewood, Colorado (3.2%); Cleveland-Elyria, Ohio (3.3%); Bridgeport-Stamford-Norwalk, Connecticut (3.5%); and Providence-Warwick, Rhode Island (3.5%).
Part
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Part
02

Reasons for Shift in Housing Occupancy - Current

Insights surrounding reasons for shifts in property occupancy in the current landscape include the economy, demographics, and tech-driven amenities.

Economy

  • In the current landscape, the health of the economy plays a major role in shifts in property occupancy. According to CBRE, although the US economy entered 2020 in a good condition, things such as the U.S.-China trade conflict complicates things. Thus, economic growth is likely to slow down in 2020.
  • As a result of the predicted slow economic growth, the demand for apartments is projected to reduce to 240,000 units in 2020 which is approximately 20% less in contrast with 2019’s 300,000 units.
  • However, CBRE further predicts that the Federal Reserve will come to the rescue of the economy and cut interest rates twice like the way it did three times in 2019.
  • The low-interest rate coupled with low inflation and the low unemployment rate will lead to strong consumer spending in 2020 and increased job growth something that can cause shifts in property occupancy in the current landscape.

Demographics

  • Major shifts in the demographics of the United States population such as the aging of Baby Boomers have significant impacts on the shifts in property occupancy in the current landscape.
  • According to Forbes, Baby Boomers and the empty nester population are associated with the moving to urban environments from the suburbs trend. Additionally, after they move to the urban areas, they prefer to rent rather than buying something that has changed the modern renter's profile.
  • CBRE also suggests that despite the slower economic growth, Millennials will continue to gravitate to homeownership in 2020.
  • According to a Clever Real Estate survey, 1,000 Americans stated that they plan to own a home in 2020 and 51% of them were Millennials.
  • Additionally, 84% of the Millennials who took part in the survey believe that homeownership is a big part of the American Dream and they prioritize it over other big life events like getting married.
  • However, the survey further stated that while Millennials aged 23 to 38 were the largest home-buying demographic in 2019, they were also the largest renting segment.

Tech-driven Amenities

  • According to the U.S. Census Bureau, by 2025, Millennials are expected to generate nearly half of U.S. household income and therefore, they provide a big opportunity in multifamily housing.
  • However, in addition to looking for amenities like shops, restaurants, and public transportation, Millennials are willing to pay more for modern appliances and fixtures.
  • A Schlage and Wakefield Research revealed that not only do Millennials prefer modern spaces, upscale finishes, and technology in their housing but also expect it.
  • The research further supported the fact that Millennials are willing and ready to pay more for an apartment that is furnished with automated or connected devices.
  • Connected lighting systems and smart appliances are some of the smart-home features that are attracting Millennials to smart housing facilities.
Sources
Sources