MPF Research reports indicate demand is driving rent growth and occupancy nationally.By Lindsay Machak
Denver, By Flickr user: Larry Johnsonhttp://www.flickr.com/people/drljohnson/[CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons
As the economy recovers, more renters are entering the market, accelerating occupancy and rent growth, according to data released by MPF Research at RealPage.
And while some renters are leaving the market to make home purchases, there is still a surge of demand for apartments. In fact, first quarter demand was reported to be up 44% compared to early 2014, according to MPF. The annual apartment demand count hit 276,513 units.
As developers scramble to keep up with demand, occupancies continue to climb with the rate reaching 95.4% in the first quarter, about 10 basis points (bps) above the preceding quarter and 40 bps year over year. Availability is particularly limited in the mid-prices and affordable properties, the report notes, since the bulk of new deliveries are at the upper end of the price spectrum.
Meanwhile, rent growth continues to soar with a 4.6% increase nationally in the first quarter. However, the research firm predicts growth will begin to slow down over the next year to the 3.6% to 3.9% range, which is still quite healthy by historical norms.
Top 10 Rent Growth Markets of the First Quarter
1. Denver-Boulder, 10.5%
2. (tie) Oakland, 10.2%
2. (tie)San Francisco, 10.2%
4. San Jose, 9.3%
5. Portland, 7.9%
6. Atlanta, 7.5%
7. West Palm Beach, 7.2%
8. Sacramento, 6.7%
9. Fort Worth, 6.6%
10. Los Angeles, 6.4%
Sacramento, CA - L5 Investments, a Northern California-based multifamily investment firm, and its partners are pleased to announce the successful closing of a 350 unit apartment community built in 1982 and located in Houston, TX. This was a joint venture opportunity with one of our valued partners.
The property is 93.4% occupied, is well positioned and stands to benefit from $800,000 in exterior and interior upgrades. Houston is currently the 4th largest city in the U.S. and Chief Executive Magazine's 2014 "Best & Worst State" rated Texas as the #1 state to do business for a historic tenth year in a row.
This will be another strong performing asset for our growing portfolio.
Contrary to popular opinion among many in the multifamily industry, Gen Y is already starting to abandon city living. Here's why.By Ryan Severino
Flickr: Ian Sane/Creative Commons/https://www.flickr.com/photos/31246066@N04/
Millennials are going to shun material goods, never own a car, and live in small spaces in utopian urban cores riding their bicycles or taking public transportation to their green, open-space offices. Forever!
This, or something like it, is the conventional wisdom in the market and wishful thinking in the apartment industry. Although some surveys results seem to agree with this popular opinion, research shows that people’s needs and preferences change over time and that people are terrible at thinking about and planning for the future, especially when they’re young.
Imagine what the baby boomers would have said in such surveys when they were that young! Moreover, the conventional wisdom is already proving untrue. The older tranches of Gen Y are already moving out of urban cores and into the suburbs. While you might be shocked to read that, let's examine why this is true based on data, and not conjecture.
First, the portion of Gen Y that’s been living in urban cores is getting married and having children. Wait, what about the death of marriage in the United States and the rise of the single-person household? While that claim is undoubtedly true to an extent, it reflects a rather sophomoric understanding of the data.
The reality is that marriage and children continue to be popular among the well-educated—exactly the kind of Gen Yer living in urban cores. The marriage rate for males with a bachelor's degree is 76%, while for those with a high school diploma, it falls below 50%.
Make no mistake—millennials are the best-educated generation in history and have similar goals as prior generations. They want to get married, be good parents, and send their kids to college. Living in urban cores is incompatible with that lifestyle for most of them. All of the arguments that follow derive from this fact.
The Quest for Space
Let's start with the size of the living area.
If Gen Yers are going to rear their 2.1 kids (the replacement rate, which is approximately the rate at which nonimmigrant domestic couples reproduce in the U.S.), they’re going to need more than the 861 square feet that can be found in the average apartment in urban cores. Believe it or not, Gen Y doesn't actually enjoy having their bed in their kitchen! And as anyone with children knows, one spends more time at home with their kids than without them. It’s not so easy to set up camp at a Starbucks for hours at a time with toddlers in tow.
Although there’s been a construction boom in urban areas over the past few years, most of the units being constructed are too small for a family of four. Families are not the source of demand for apartments today, and so units aren’t being built to suit their preferences.
Once they start reproducing, or at least thinking about it, Gen Yers are going to seriously consider the quality of the school system where they live. Of course, most urban cores have notoriously bad school systems. Sure, there are some bright spots, but, by and large, they’re few and far between, and rolling the dice on one's children's education is something most responsible parents won’t do.
Despite a renewed focus on education in urban areas, it’s highly unlikely standards are going to increase significantly in the next five to 10 years—certainly not to the level of the nearby, beckoning suburbs that are well funded through local property taxes.
Additionally, many cities are sitting on massively underfunded pensions. As we’ve recently seen in Detroit, while public obligations might be scaled back a bit, they aren't going away completely, and they’re indeed massive.
Morningstar estimates, for example, that Chicago’s unfunded pension liability is $18,596 per inhabitant; New York’s, $9,842 per inhabitant. So, one of two things, or some combination thereof, will have to occur: Either taxes are going to have to increase, or services are going to have to be cut.
As anyone who has studied basic urban economics knows, a sure way to get people to move out of a municipality is to either raise taxes without a commensurate increase in services or cut services without a commensurate decrease in taxes. As residents flee the ticking time bomb of unfunded pensions for the suburbs, it will only make the problem worse.
Gen Yers might be young and idealistic, but they’re not stupid. The closer they get to marriage and having children, the more they’ll begin thinking about these things, just as previous generations did. Surely, some of them, likely the best paid (who can afford private schools), will stick around urban areas. But that’s always been true, even during the 1970s and 1980s, when cities were rather dirty, dangerous places.
When Gen Y disembarks for the suburbs, it won’t be to the strip-center–ridden dystopia you’re likely imagining. Rather, they’ll look for places that have urbanlike downtowns and excellent access to infrastructure (especially public transportation) that can take them in and out of the urban cores where the jobs are located.
These “diet urban” nodes are already popular with the Gen Xers and older Gen Yers that have already fled for the suburbs. This, of course, will mean owning a car. But don't worry--Gen Y actually bought more new cars than Gen X in the first half of 2014.
Believe in hard facts and data, not what some 20-somethings say they might do 10 years from now.
Q1 Metrics Show Apartments Going Strong
By Paul Bubny
JP Morgan analysts say the rising burden of student loans is making it "even more unsustainable" for young people to buy homes
9:50 AM PDT
March 18, 2015
Because of a growing mountain of student loan debt, young people will find it harder to buy homes in coming years, JPMorgan analysts say.
The student loan debt burden rose 8 percent, to $1.16 trillion, last year. Most of that debt—65 percent—was owed by borrowers under 40 years old. College tuition has been rising faster than the rate of inflation for decades. The double blow of a younger indebted population and higher college costs means "housing is becoming even more unsustainable for first-time buyers," the analysts said in a note.
"Student loan debt continues to drag on the young generation, limiting their ability to purchase homes," the analysts said.
The dark blue and light grey bars, which represent borrowers under the age of 40, show the bulk of student loan debt is owed by young people.
Analysts and economists have argued that student loans are dampening the millennial homeownership dream for a while now. Last year, the homeownership rate for thirtysomethings who have histories of student loan debt declined the most of any comparable age group. The share of young adults living at home is also on the rise: The share of 25- to 34-year-olds living with their parents rose to a record high of 17.7 percent for men and 11.7 percent for women in 2014, according to Census data.
It might be time for Mom and Dad to clear out their basements for a new tenant.
By Derek Thompson March 27, 2015 10:19 AM
The new Census population estimates are out today, and only two metros added more than 100,000 people between July 2013 and July 2014. Houston and Dallas—both in Texas.
Only one metro with a population greater than 1 million people grew by 3 percent last year. It's Austin—also in Texas.
And you'll never guess what state had the most entries in the list of 50 counties with the greatest population gains. I'm kidding, you definitely will guess, because it's Texas.
If you pretend that the United States is populated exclusively by twentysomething graduates of national research universities, you'll develop the sense that everybody is moving to the city centers of New York, Chicago, San Jose, and Boston. In fact, all three of those metro areas have seen more Americans leaving than coming in the last five years. The cities with the highest levels of net domestic migration since 2010 are Houston, Dallas, Austin, Phoenix, Denver, and San Antonio. Once again, we're talking about Texas. More broadly, we're talking about sprawly metros with fast-growing suburbs in the Sun Belt.
Where Americans Are Moving: Net Domestic Migration Between 2010-2014, by Metro
The unavoidable takeaway from the Census report is that Americans have resumed the westward suburban ho of the early 21st century, before the Great Recession came crashing down. None of the 20 fastest-growing metros are in the northeast. Rather, they're in the sunny crescent that swoops from the Carolinas down through Texas and up into the west toward the Dakotas. Americans are back to sun-worshipping, as the New York Times explains in an all-too-clear graph:
Like Moths to a Flame: Population Growth in 2014, by Average January High Temperature
New York Times | Data: TruliaThe story of immigration is slightly different. The list of cities with the greatest foreign-born influxes since 2010 includes some of these warm metros, like Houston and Dallas, but also filling out the top-ten metros for immigrants are areas where more native-born Americans are leaving, like New York (#1), Los Angeles (#2), Boston (#7), and Chicago (#9).
But the upshot seems to be that even as the recession sparked interest in an urban revival, the metros that seem to be winning the population lottery are suburbs of warm metros—including many of the very Sun Belt areas that seemed devastated by the recession.
Read Americans Love Big Hot Suburbs on theatlantic.com
L5 Real Estate Investments, LLC is a privately held investment firm focused on stable, income producing multi-family opportunities in emerging U.S. markets.