USA multi-family fact checking

Part
01
of three
Part
01

US multi-family industry- fact check (part 1)

We fact checked the provided data related to the US multi-family industry and concluded that allthree facts proved to be false. First, there are currently 47 million rental properties in the US and 61% of those 47 million properties are included in the multi-family industry, which means there are 28.67 million households in the US multi-family industry. Secondly, in 2016, the churn rate was 49.9%. Finally, for rentals with 2-4 units, mom-and-pop owners constitute 76% of the owners, while for rentals with 5-49 units, mom-and-pop owners constitute 25% of the owners.

METHODOLOGY

In order to successfully fact check the three provided statements, we first researched what is considered under multi-family industry. The multi-family category "includes all buildings containing at least two housing units which are adjacent vertically or horizontally. The U.S. Census defines separate multi-family categories for buildings housing two families, three-or-four families, or five-or-more families." Therefore, we fact checked all residential rental market data to correlate with this definition of multi-family industry, where at least two separate housing units are present in one building in order to be considered a part of the multi-family industry.

FACT 1: The US residential rental market has 43.8 million households (false)

The American Community Survey for 2016 says that renters occupied 43.8 million residences in 2016. Out of these 43.8 million households, 34.8% consist of one-unit single-family homes. A simple calculation (43.8 million x 0.348) brings us to the number of 15.24 million rental households being one-unit single-family homes which do not fall under the multi-family industry. The remaining 65.2% renters live in buildings that have two and more units. A simple calculation (43.8 million x 0.652) brings us to the number of 28.56 million rental households that fall under the multi-family industry.

More recent data collected by Harvard in the America’s Rental Housing 2017 report shows that the number of rentals properties in the US increased to 47 million in 2017. 61% of those 47 million properties are included in the multi-family industry, which means there are 28.67 million households (47 million x 0.67) in the US multi-family industry.

FACT 2: The annual churn rate is 62% (false)

While the data for the annual churn rate was not available, we were able to triangulate this data by using the number of people who renewed their expiring leases. Churn rate is defined as "the percentage of subscribers to a service who discontinue their subscriptions to that service within a given time period". If we use this definition for rentals, churn rate would be the percentage of people discontinuing their lease at the point when their lease is up, or better said: not renewing their lease and leaving the current rental home.
We were able to find statistics for 2016 regarding the percentage of people who renewed their lease. According to RealPage, Inc and MPF Research, of all expiring leases in February 2016, 55.1% were renewed. That number marked a 10-year high, and was up 10% when compared with the same data from February 2015. It also "marked the 33rd year-over-year increase in the past 34 months", which means it can be considered a trend where people are more and more inclined to renew their lease. According to the above mentioned definition, churn rate is the exact opposite of the lease renewal rate. A simple calculation leads us to a conclusion that in 2016, the churn rate was 49.9% (100% — 55.1%).

FACT 3: 85% of the multi-family industry is mom-and-pop owned (false)

According to February 2018 data by CoreLogic, 80% of 1-unit properties are owned by mom-and-pop owners. However, these properties don't fall under the multi-family industry, as explained before.
Harvard's 2017 report titled America’s Rental Housing shows that "individuals own three-quarters of rental properties (74%) but just under half of the nation’s rental units (48%), while business entities own 15 percent of rental properties but a third of units". If we look specifically at the multi-family industry the statistics for mom-and-pop owned rentals are as follows:
For rentals with 2-4 units, mom-and-pop owners constitute 76% of the owners.
For rentals with 5-49 units, mom-and-pop owners constitute 25% of the owners.
For rentals with 50 or more units, mom-and-pop owners constitute 5% of the owners.

CONCLUSION

We fact checked the provided data related to the US multi-family industry and concluded that the fact that US residential rental market has 43.8 million households is true. All three facts (the US residential rental market has 43.8 million households, the annual churn rate is 62%, and 85% of the multi-family industry is mom-and-pop owned) are false.
Part
02
of three
Part
02

US multi-family industry- fact check (part 2)

We found answers to each of your questions using either sources that rely on the US Census Bureau for data or in the data downloaded directly from the Bureau. Below you will find statistically backed responses to all three of your queries.

home ownership rate

I have interpreted this question two different ways and will answer both. The first is the assertion that this year had the lowest rate of homeownership in the last 50 years. The second is that the last few years have seen the home ownership rate fall to its lowest rate in 5 decades.

The answer to the first question is unequivocally no. The rate of homeownership was higher in 2017 (63.9%) than it was in either 2016 (63.4%) or 2015 (63.7%). It is also higher than the low rates around 63.8% in the late 1980s. Although much lower than the record high rates before the housing crisis (69% in 2004), 2017 is still not a bicentennial low.

To answer a broader question, and the question that I feel you are driving for, that homeownership in recent years has hit a low it hasn't seen in 50 years, the data points to the affirmative. The especially low rate in 2016 is the lowest in the past 50 years. To find lower rates we have to extend our analysis a few years to 1965 (63%) and 1964 (63.1%)

New Renters added each day

This question requires a projection of the recent growth in renters in the market. The total number of renters has increased steadily between 2006 (34,600,000) to 2016 (43,300,000). This equates to a daily growth of 2,382.

(43,300,000-34,600,000)/(10*365+3)=2,382
Where 10 is the number of years 2006-2016, 365 is days in the year, and 3 is the leap year days from 2008, 2012, and 2016.

According to the data, the assertion that there are over 2,600 new renters each day is slightly high. Although population growth could raise the number of new renters in the future, the gradually increasing rate of homeownership could just as easily lower it.

Millennial apartment renter percentage

For the purposes of this write-up, I will use Pew Research's definition of the millennial generation which are those aged 18-34. The last assertion that 75% of apartments are rented to millennials is false. Although millennials do make up a sizable chunk of the apartment rental market (around 35%) they are not even close to renting out 75%. The age ranges used by the American Community Survey don't line up with millennials exactly. They have an age range for <30 which rents 25% of the apartments and for 30-44 which rents 29%. To arrive at 35% I assume that the number of individuals renting apartments below the age of 18 is small enough to be statistically insignificant. I then took 1/3rd of the second group to account for those aged 30-34.

30-44 is 15 age groups while 30-34 is 5 age groups. 5/15=1/3
25%+29%/3= approximately 35%.

Conclusion

We found that the data in all three instances was false. In the first two cases, the data was close to matching the queries. We are in an undeniable homeownership slump with record lows, but the rate was slightly higher this year than in 2015 or 2016. There are also more than 2,380 renters added per day which is more than 90% of the assertion of 2,600. The percentage of apartments rented to millennials (35%), however, does not approach 75%.

Part
03
of three
Part
03

US multi-family industry-rental statistics (part 3)

According to the 2016 American Community Survey by US Census Bureau, 43.8 million of rental households in the US house 111 million tenants. This makes up for 37% of the total households number in the US. The overall rental vacancy rate decreased sharply from 10.8% in 2010 to 6.9% at the end of 2016. If calculated in days, that is 25.2 days (0.069 x 365) in a year.

RENTING STATISTICS AND TRENDS

According to the 2016 American Community Survey by US Census Bureau, 43.8 million of rental households in the US house 111 million tenants. This makes up for 37% of the total households number in the US.

According to the PEW research center, more U.S. households were renting in 2017 than at any other point in the last 50 years: "The number of households renting their home increased significantly, as did the share, which rose from 31.2% of households in 2006 to 36.6% in 2016. The current renting level exceeds the recent high of 36.2% set in 1986 and 1988 and approaches the rate of 37.0% in 1965."

If we look at demographics, there are certain groups that have always been more likely to rent than others, such as young adults, nonwhites and the lesser educated. The rental rates have increased among these groups over the past decade (2006 – 2016). However, the rates also went up among the groups that are historically less inclined to rent, such as Caucasian people and middle-aged adults. When it comes to age groups, young adults under 35 are the most likely to rent. In 2016, 65% of households that consisted of people younger than 35 were renting, which is an 8% increase compared to 2006. The second age group, those between ages 35 and 44, are also more likely to rent today than they were in 2006 (41% compared to 31%). Rental rates increased among households that are headed by someone in the age group between 45 and 64 (22% in 2006 to 28% in 2016). For the oldest age group (65 and older), the rental rate stayed the same at around 20%.

The increase in the number of people who are renting over owning does not correlate to home ownership being an undesirable idea to renters. 72% of renters admitted they would like to buy a home. Around 65% said that the primary reason why they are currently renting a place is as a result of circumstances, while only 32% said they rent as a matter of choice. When asked to give a specific reason why they rent, the majority of renters cited financial reasons.

According to Statista's forecast report for US multifamily vacancy rates, "it is expected that the multifamily rent growth would amount to 5.2% in the second quarter of 2019". The vacancy rate for the last quarter of 2017 amounted to 6.1%.

An interesting statistic comes from a report conducted by Freddie Mac 55+ Survey of housing plans and perceptions of people born before 1961. According to them, 5 million of baby boomers and "others aged 55 or older, including several million current homeowners, expect to move to rental units" by 2020.

When it comes to forecasting how this number is excepted to change in the following years, a forecast on multi-family investments in the U.S. states that the US is "becoming more of a renters' nation" with the
millennials "loving the portability aspect of living" which includes "B class apartments with nice amenities, no need to mow the lawns
or take care of the swimming pools, etc., and no need to drive to the
fitness club — because all of this is contained at the dwellings". Another forecast expects the affordable multi-family housing for rent to become only more and more interesting to renters. The report mentions that the "affordable multifamily housing vacancies clocked in at a low 1.7%". On top of that, home ownership is "becoming less of the norm and more of a luxury. Prices reached a 31-month high in January 2017, resale inventory is low, and new homes in affordable cost brackets are in shorter supply". Finally, the report cites that the number of millenials who will reach the "prime renting ages of 20 to 34" will climb up to 2 million in 2017 and surpass 70 million by 2024. These numbers all point to multi-family homes becoming even an even more popular renting choice.

VACANCIES

We were unable to find any data regarding how long it takes, on average, to fill up a vacant unit after tenants leave. This is because filling a vacant unit depends on a number of different factors, including the vacancy rate in the area, as well as the fact that the market has now become a renter's market. This particular factor means that rent property owners may not be able to charge the same amount of money for the unit as they previously had because tenants can more easily switch between different units.

The general rule of thumb that is normally applied to vacancies is to assume that a property will be empty for one month out of the year. Therefore, a single property will have an average annual vacancy rate of 8.33% (1 month / 12 moths).

As we were unable to find an average time (in days or weeks) as to how long it takes to fill a vacancy, we provide the vacancy rates which can in turn be used to calculate the average amount of days a property is empty in one year:
1. The highest-priced Class A segment experienced a growth in vacancy rates of 1.5% and currently has a vacancy rate of 6%. If calculated in days, that is 21.9 days (0.06 x 365) in a year.
2. Vacancy rates in the lower-cost Class C and Class B segments also increased, but still remain low at around 4%. If calculated in days, that is 14.6 days (0.04 x 365) in a year.
3. The overall rental vacancy rate decreased sharply from 10.8% in 2010 to 6.9% at the end of 2016. If calculated in days, that is 25.2 days (0.069 x 365) in a year.
4. Vacancy rates in professionally managed apartments when it comes to multifamily buildings are currently at a low that matches the one from 1960s and amounts to 4.5% in Q3 2017. If calculated in days, that is 16.4 days (0.045 x 365) in a year.
5. Vacancy rate for multifamily buildings with 5 and more units increased by 0.9% and is now at 8.5%. If calculated in days, that is 31.1 days (0.085 x 365) in a year.

CONCLUSION

37% of the total households in the US are currently rental households. The number of rental households when it comes to multi-family industry is expected to increase because of the US is "becoming more of a renters' nation" with the millenials "loving the portability aspect of living". Vacancy rates in professionally managed apartments when it comes to multifamily buildings are currently at a low that matches the one from 1960s and amounts to 4.5% in Q3 2017. If calculated in days, that is 16.4 days (0.045 x 365) in a year.
Sources
Sources