Enough About the Millennials – Let’s Talk About How Gen Z Will Impact the Apartment Market

Millennials have dominated the attention of the business world for so long that we’ve almost forgotten that there are other markets out there to conquer. (As a member of GenX you don’t want to get me started about how my whole generation was forgotten because we were squeezed between the Baby Boomers and the Millennials). Wouldn’t you know it, the successors to the Millennials, GenZ, are entering the rental housing market in a big way and they are starting to have an impact. Bob Pinnegar, NAA’s CEO, recently wrote about these changes for the Washington Post. Here’s an excerpt:

By 2020, Gen Z will represent 40 percent of all consumers. While most of the business insight into this generation (those born between the mid-1990s and early 2000s) has been focused on its spending habits as teenagers, its oldest members are now graduating college, entering the workforce and seeking apartment homes of their own…

Gen Z has never lived in a world without the Internet or social media. More than any previous generation, it takes for granted the availability of technology. An iPhone isn’t a technological achievement; it’s simply a part of daily life…

Gen Zers’ social media savvy also makes it critical to differentiate marketing and messaging for various channels… Gen Z uses Twitter more often than millennials, and that platform is an ideal way to reach them with real-time, immediate marketing messages such as sales offers and stories about new amenities. Instagram is for inspiration, so compelling images are essential, and Snapchat is perfect for storytelling through images…

Gen Zers were raised by the skeptics of Generation X and grew up during a recession. They are quick to fact-check claims and, as the IBM and NRF report found, “their focus is on quality and authenticity — not on marketing hype.” For property owners and managers, this means actively engaging with residents and taking a transparent approach when providing community information. Negative reviews online are not deleted; they are thoughtfully addressed.

Click here to read the entire article.

Invitation Homes IPO Raises $1.54 Billion

Blackstone Group LP’s massive bet on the single family rental home market seems to have paid off with the initial public offering (IPO) of it’s Invitation Homes Inc. on January 31, 2017. From the Wall Street Journal:

The private-equity giant’s Invitation Homes Inc. raised $1.54 billion in its initial public offering late Tuesday, according to two people familiar with the deal. The real-estate investment trust sold 77 million shares at $20 apiece in its IPO, according to the people, making it the largest U.S.-listed IPO in more than a year.

Invitation Homes is the end result of the biggest homebuying spree in history. Starting in 2012 with a home in Phoenix, Blackstone spent some $10 billion buying and fixing up homes to rent. For stretches, the firm spent $150 million a week on foreclosed homes, often buying them sight unseen.

The company now owns and rents 48,431 houses in 13 markets, from Seattle to south Florida, according to Invitation’s offering document. Blackstone Group didn’t plan to sell any of its roughly 70% stake in the IPO, the filing said, but the listing will enable it to begin cashing out of its investment in the future.

Now the question is this: will the US housing market continue to lean towards renting? If so, that could be a rising tide of rental housing that’s good for the continued health of the apartment industry too.

Fannie Moves Into House Rentals

Fannie Mae, the government-controlled mortgage-finance company, is moving into the home rental space. From an article in the Wall Street Journal:

The government-controlled mortgage-finance company said it would guarantee up to $1 billion in debt from Blackstone’s Invitation Homes Inc., which owns the country’s largest pool of rental homes.

The deal was disclosed as Invitation began pitching investors on its shares this week with an initial public offering expected as soon as next week. Invitation’s stock-market debut could be the largest U.S. IPO since October 2015, if the shares price in the middle of their expected range, raising about $1.5 billion for the company.

Fannie Mae’s involvement signals a belief that homeownership will remain out of reach for many Americans. Homeownership has declined since the housing crisis amid stricter lending standards, mounting student debt, and potential buyers whose savings and credit diminished during the recession. Last year, the homeownership rate reached its lowest level in at least 50 years, according to U.S. Census Bureau data.

Fannie’s guarantee also suggests a view that Wall Street’s housing wager is a long-term business, not just an opportunistic trade made after the foreclosure crisis.

So it looks like institutionally owned and managed SFH rentals are here to stay, at least for the foreseeable future.

Lopsided Housing Market

Recently the Wall Street Journal ran a story on the housing market that helps explain why rental housing rates in the country continue to be strong. From the article:

The pace of new home construction remains at levels typically associated with recessions, while the homeownership rate in the second quarter was at its lowest point since the Census Bureau began tracking quarterly data in 1965 and the share of first-time home purchases remains mired near three-decade lows.

The lopsided recovery has shut out millions of aspiring homeowners who have been forced to rent because of damaged credit, swelling student loans, tough credit standards and a dearth of affordable homes, economists said…

The main reason for falling homeownership, economists say: mortgage availability. Lenders chastened by the financial crisis have been fearful of making loans to borrowers with dings on their credit, student debt or credit-card bills, or younger buyers with shorter credit histories…

An estimated 1 million new households were formed last year, but only 620,000 new housing units were built, according to the Urban Institute. An analysis of census data by the Urban Institute showed that all of the net new households formed between 2006 and 2014 were renters rather than owners.

The article is full of some amazing statistics, not the least of which is that one firm expects the rate of home ownership to fall to 58% by 2050. That shows a stunning trend that promises a significant impact on the entire economy, not just rental housing.

Future Looks Good for Apartment Industry for Years to Come

From the 6/8/15 Wall Street Journal:

The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak.

But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least 15 years.

Demographics tell the story.

Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average.

The upshot is that fewer than half of new households formed this decade and the next will own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners.

The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

You really should read the whole article. A couple of people who disagree with this assessment are quoted, but even they see the rate of home ownership stabilizing and staying lower than it was before the recession. There’s also some discussion about the impact on housing affordability, and interestingly it’s led by Ron Terwilliger who was the keynote speaker at this year’s Apartment Association of North Carolina education conference. He has some interesting ideas about reducing the mortgage deduction and moving some of those dollars over to help with rental housing. That would be a political hot potato, but it’s a sign of how different times are these days.
All in all, those signs bode will for the apartment industry from years, maybe even decades to come.

The Statistic That’s Redefining Rental Housing


Apparently the days of rental housing being utilized largely by young adults are behind us. According to new data from Harvard’s Joint Center for Housing Studies more than half of U.S. renters are over the age of 40. In 1995 the share of renters over the age of 40 was 43 percent. According to the researchers, there are multiple factors contributing to this trend:

This finding in a report released Wednesday by Harvard University’s Joint Center for Housing Studies overturns the assumption that the rental boom is only the result of twenty-somethings flocking to hip urban centers. Single-family houses are a growing share of rentals. And affordability problems are mounting as rents rise faster than wages, while apartment construction increasingly targets tenants with six-figure incomes…

The increase in older renters corresponds with a surge in foreclosures after the housing bubble popped. Since the 2008 financial triggered by the housing bust, there have been roughly 6 million completed foreclosures, according to CoreLogic, a property data firm.

Many of these are former owners transitioned to renting.

“Middle-aged households in particular bore a big brunt of the housing crash,” said Christopher Herbert, managing director of Harvard’s Joint Center for Housing Studies.

But Herbert also noted that more of the baby boomers born after World War II are growing older, which has also caused sharp increases in the number of renters between the ages of 55 and 69 during the past 10 years. During that same period, the United States has added a total of 9 million renters — including younger millennials recent out of college.

The report also noted the rise in rents due to a tight housing supply as a contributing factor as well.

Existing Home Sales Weaken Despite Job Growth

Today’s Wall Street Journal has a story that looks at a month-to-month decline in existing home sales that came as a surprise to the experts:

Existing-home sales declined 6.1% in November from a month earlier to a seasonally adjusted annual rate of 4.93 million, the National Association of Realtors said Monday. That was the lowest level since May.

November’s sales were 2.1% higher than a year ago and followed a particularly strong October, when sales reached their highest level of the year.

NAR chief economist Lawrence Yun called last month’s decline puzzling given strong job creation, rising consumer confidence, low interest rates and near-record stock-market levels. “Factors for improving home sales are rising,” Mr. Yun said. “Today’s decline, which is a large decline, is a bit puzzling, and I think it will be a one-month aberration.”

That could be true, but if the Fed raises short term interest rates next year as expected then borrowing costs could go up. In many markets there’s also a tight supply of homes which leads to an increase in prices. Finally, many of the jobs that are being created are lower-paying. Combine all that and you what you get is a recipe for continued weakness on the home buying front, which is probably good news for the apartment industry.


Renters in Winston-Salem Get Say in On-Street Parking Decisions

Winston-Salem’s tightening its procedures for citizens to request bans for on-street parking and renters will be allowed to weigh in. From the Winston-Salem Journal:

Under the old rules, adjacent property owners could request that on-street parking be banned on their streets. If fire, police and city transportation officials agreed, the signs could go up and the on-street parking would end…

At the Sept. 9 committee meeting, Council Member James Taylor proposed that for rental properties the tenant and owner each get one vote. For properties occupied by the homeowners, the owner would get two votes. That motion passed, with Taylor and Council Member Dan Besse in favor, Council Member Robert Clark opposed and Council Member Derwin Montgomery abstaining…

When the issue came before the council Sept. 15, Clark proposed a substitute motion to leave the decision with only property owners…

Clark’s substitute motion failed on a 4-3 vote, with Montgomery and Council Member Jeff MacIntosh supporting Clark’s motion.

Taylor then brought back up the idea of giving renters a say, and that motion passed 6-2, with Clark and MacIntosh opposed.

Fed Worried About Tepid Housing Market

From the Wall Street Journal:

A housing slowdown that became evident late in 2013 shows few signs of reversing. Existing home sales in March fell for the seventh time in eight months and were 7.5% below the seasonally adjusted annual rate of a year earlier.

New building permits for single-family homes stood below the year-earlier level for the second straight month in March. Sales of new homes during the first quarter were 1.8% below the year-earlier level, punctuated by a 13% decline in March…

Some analysts have warned that the market’s health had been overstated by a sudden but short-lived release of pent-up demand from traditional buyers last spring, coupled with aggressive purchases by investors soaking up a glut of distressed properties.

These analysts argue that broader economic problems could hold housing back, including the failure of younger households to strike out on their own because their incomes are uneven and they have high debt loads. Continued tight credit standards have made it harder for these marginal buyers to obtain mortgages.

Once again we’re seeing indicators that favor rental housing in the near/mid-term future, which is good news for those who might be concerned that the apartment market is due for a fall.

Can NIMBYism Lead to a Gen Y Brain Drain?

The state of Massachusetts has a real problem – they’re losing many of the coveted demographic of young professionals due to a lack of available apartments. From the article:

Though the production of more rental units is integral to the growth of the state, many communities, namely single-family strongholds, are still staunchly against multifamily projects. But the lack of rental units across the state is starting to cause something of a brain drain among the Gen Y crowd.

“We’re trying to break a stalemate,” Massachusetts’ housing and economic development secretary Gregory Bialecki said at an Urban Land Institute forum in January. “The approach the state has taken is what I call an ‘eat your veggies’ strategy. ‘I know you don’t want this, but it’s necessary.’ It hasn’t been effective.”

The state already lost a congressional district in 2010 after seeing just moderate census numbers, and multifamily starts have been down. So far, Boston’s scheduled completions are well short of the state’s 10,000 unit starts per year goal—the city’s inventory will grow roughly 1.5 percent this year as it sees about 6,500 completions…

A big part of that education process is changing the perception of multifamily in NIMBY-heavy areas. Municipalities should view the production of apartments as integral to the state’s future  as roads and bridges. The state is working to create a prompt and predictable permitting process