AN INVESTOR’S PERSPECTIVE: INVESTING IN REAL ESTATE AS AFFORDABLE HOUSING NEEDS GROW FOR MILLENNIALS

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Affordable housing needs for millennials may be a key driver for increased demand of single family and multi-family rentals over the next five years and longer.

In a 2012 study conducted by The Demand Institute, “The Shifting Nature of U.S. Housing Demand” it was predicted that as the economy recovers there would be a shift in demand for rented housing accommodations.1 In a subsequent study, “A Tale of 2000 Cities” (February, 2014), researchers reported a main driver of housing demand over the next five years would be the number of millennials, ages 18-34, who are planning to form new households. As a result of a moderately strengthening of economic growth and better jobs becoming available for Millennials, they are moving from their parents homes and other shared accommodations into independent living arrangements. As Millennials transition in to independent living it could mean more housing ownership, but it seems more likely that Millennials will be renting long before home ownership becomes a reality.2

Demand Institutes research shows that home ownership will not rise above 65.5% of all households before 2018 compared to ownership at the height of the housing bubble which as near 69%. Furthermore, indications are that rental demand will continue to prevail over homeownership due to ongoing financial constraints and slow recovery from the Great Recession of 2008. The high number of foreclosures and financial burdens that families and Millennials carry due to lack of steady, higher paying jobs and/or educational debt will delay their ability to save for required down payments. Recent reports from a Pew Research Center study, “Millennials in Adulthood”, seems to share a similar outlook. While Millennials are very optimistic about their financial future, “the most stubborn economic optimists”, there exists a gap between aspirations of being homeowner and the reality of affordability and Millennials will likely need to “re-evaluate their place in the broader economy”,3 which could mean a higher propensity for renting vs. buying.

To further support a continued trend towards renting, 81% of the households that the Demand Institute surveyed reported they believe it is important to have a home, “whether it is owned or rented” so long as the cost falls within their budget without imposing serious sacrifices.2 This finding could may imply a greater demand for single family homes, however demand for multi-family units will also continue. Complicating the financial situation and furthering the shift from home ownership to renting is the increase in rental prices, which is making it even more difficult for households to save for down payments and become home owners. The opportunity for real estate investors seeking cash flow from rental properties has never been greater.

The current economic environment, along with the trend and continued forecast for renting by Millennials, presents a mutually beneficial opportunity for real estate investors who can provide affordable housing for those seeking to form new households by renting a single family home or multi-family units. Home ownership is no longer viewed as “a vehicle to wealth” and renting has grown in appeal, according to a recent MacArthur Foundation press release.4

Investors have an opportunity to provide a flexible housing alternative for a generation that considers renting as “part of a continuum in life” and can seize the market as part of their own strategy to build cash flow in real estate investing.

  1. L. Keely, B. van Ark, G. Levanon, J. Burbank. The Demand Institute. May 2012. “The Shifting Nature of U.S. Housing Demand”
  2. L. Keely, K. Bosstjancic. Febuary 2014. The Demand Institute, “A Tale of 2000 Cities:””
  3. Pew Research Center. (2014) “Millennials in Adulthood”. Available at http://www.pewresearch.com
  4. MacArthur Foundation “2014 Housing Matters Survey” June 3, 2014. Press Release Available at http://www.macarthur.org

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