Demand For Rentals Likely To Pick Up Soon
The Silver Lining Of This Economic Downturn: More Demand For Rentals
Investors looking for some kind of silver lining among Portland’s high unemployment, tight credit and waves of foreclosures, are starting to gear up for what a growing number of pundits are calling “the age of the renter”. Here’s what Barron’s recently had to say about this trend:
…demographic and economic forces, together with [...] government policy, are combining to push the share of ownership back to where it was in the early 1990s. Already, in the wake of the housing bust that brought on the Great Recession, the share of U.S. households owning homes has slid steadily—from 69% at its peak in 2004 to 67.2% in this year’s first quarter. And the rate is likely to fall to its 1993-94 level of 64% by 2015.
The flip side of this trend is a rising rental rate, which probably will hit 36% by 2015, versus 32.8% in 2004. Every percentage-point increase represents nearly 1.3 million households, and the average household includes more than two people—so roughly 10 million extra folks could be moving into rentals over the next five years.
Apartment Rentals Already Surging In Some Areas
The shift towards a greater number of renters is a long-term process, and will be strongly influenced by regional differences in the supply if rental housing, local employment conditions etc. However, there is increasing evidence that this trend is indeed unfolding in several metropolitan areas:
The number of occupied apartments increased by 215,000 in the 64 largest U.S. markets in the first half, according to MPF Research. That’s almost double the units added in all of 2009 and the most since the firm began tracking the data in 1992. The vacancy rate declined to 6.6 percent last month from 8.2 percent in December.
Portland Expected To Join The Trend By 2011
Historically the Portland housing market has lagged national trends by 9-12 months, and rarely follows the same pattern. Once again this appears to be the case; apartment vacancies for the Portland metro area are reported at 5.1 percent in the spring 2010 MMHA report vs. 5.9 percent in the fall 2009 report. With continued weakness in the economy, many prognosticators (REIS, Marcus & Millichap, and CBRE Torto Wheaton) actually expect apartment vacancies to trend upward over the next 6-9 months.
However, according to several sources (Red Capital Group, Greenlight Portland) employment growth is expected to return in early 2011. When this happens, demand for apartments will rise as many 20-something’s tired of living with their parents move out on their own. Much of the initial demand will be absorbed by current vacancies. However, given the severely limited new construction of apartment units in the last 18 months (permits issued for a mere 800 units in 2009 vs. 4,000 units in prior years), some analysts are expecting a shortage of apartments in select Portland sub-markets by 2012.
Which sub-markets are likely to experience supply shortages? What kind of returns can an investor expect? Drop me a note to find out.
