Staying abreast of and planning for changing trends in multifamily housing gives investors a crucial boost in obtaining and retaining tenants and maximizing profit. A surplus of low-income renters, an aging population, and a geographic shift in demand create a chance for investors to rework portfolios to take advantage of the changing multifamily landscape. Let’s consider some trends that might indicate the future of multifamily housing.
Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More
Expect High Demand for Class B and C Apartments
Due to inflation and rising home prices, Americans are getting less with their money. That may make class B and C apartment buildings more profitable.
Between 2020 and 2021, home prices increased by 16 percent, and the cost of goods on the Consumer Price Index rose 5.4 percent between June 2020 and June 2021. However, during the same timeframe, the national median household income only increased by two percent.
None of those figures change the reality that everyone needs a place to live, but it does impact the resources and options of prospective tenants. Savvy investors will be sure to fill this need.
Renters Earn Less Overall
On average, renters make less income than homeowners. The average household income for those who rent is approximately 50 percent less than those who own. On top of this, the bulk of the country’s population growth over the next 50 years is expected to be from international migration, not domestic births.
The resulting impact on the multifamily market is that a wide swath of Americans will need housing but will not be able to afford to buy a home or rent luxury apartments. Older, less upgraded buildings can fill this need with lower rent.
Demand Projected to Outpace Supply
Class B and C buildings have long been in demand by investors for their value-adding potential to improve occupancy, raise the rent, and create appreciation. In markets where lower-cost housing remains in short supply, these buildings can see steady income without the capital expenditure for upgrades.
So far, supply is not keeping up with demand. Before the pandemic, the National Multifamily Housing Association estimated that the U.S would need an additional 4 million apartment units by 2030 to meet the growing population’s demand—or about 328,000 units per year. Yet, on average, the U.S. only builds half that amount per year.
Overall, investors should closely monitor the needs in their area to weigh whether a high-occupancy, lower-rent building could be more profitable than a total renovation.
Prepare for an Aging Tenant Pool
Forget the supposition that the multifamily housing is only for the young. Instead, it will fill a critical infrastructure gap in housing an aging population.
In 2030, the last baby boomers turn 65, making 1 in 5 people in the U.S. 65 or older, and the vast majority of that generation will be considered the “youngest old,” meaning they are younger than 85.
Those young baby boomers value independence and do not yet need full-time nursing care. So instead, expect them to turn to multifamily housing. Many will downsize from houses that are too large or expensive on a retiree’s fixed income. Others never owned to begin with and will simply continue to rent. Still others will see multifamily living as a low-maintenance, convenient way to spend their golden years when buildings are properly marketed.
Use Accessibility to Attract Seniors
Multifamily investors can take advantage of these realities in a few ways. First, traditional apartment buildings can capitalize on the aging population by focusing on accessibility features that make aging in place possible. Ramps, elevators, walk-in showers, valet trash removal, and in-unit or on-site laundry are just a few upgrades to open a building to a new generation of renters.
At minimum, make accommodations to avoid excluding this generation altogether. The numbers and economists make it clear that the high proportion of aging Americans will reshape everything they touch. The silver wave may sink investors who do not adjust.
Consider Specializing in Senior Housing
Multifamily housing designed for, rather than just accommodating, seniors is another option.
Make a property a destination through amenities targeted to seniors like recreation rooms, senior fitness classes, and referrals to services like errand assistance. Of course, to capture this demographic even better, further target this niche through age-restricted communities or assisted living facilities.
Watch for Population Shifts
Since the pandemic, domestic migration is reshaping geographic demand. Downtowns and central business districts became ghost towns almost overnight last year during lockdowns. Expensive apartments lost their appeal when no bars or restaurants were open nearby and no office to commute to.
As a result, people enjoyed the benefits of remote work or dealt with layoffs by moving to areas with lower costs, better weather, or that were closer to family. For example, Idaho and South Carolina became unexpected growth areas from inbound migration from other states during the pandemic.
Vaccines were formerly heralded as the bringer of normalcy, but many workers make it clear that they do not want to go back. Investors who can stay ahead of the curve and invest early in areas of high demand stand to profit the most.
Final Thoughts
When contemplating the future of multifamily housing, it’s important to consider the significant societal and demographic changes that reshape the needs of large portions of the population. These shifts create major opportunities for investors to build robust portfolios.
Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More
