There will be more 20-somethings over the next 20 years than at any time in the country’s history, which apartment developers and lenders need to remember when thinking about construction and rental prices.
This was one piece of advice that Dr. Richard Green, director of the Lusk Center for Real Estate at the University of Southern California, gave about 200 attendees at his talk on economic and macro apartment supply and demand at the Pacific Coast Builders Conference on Thursday.
“There will be about 2 million more 20-somethings this time around than the ones from the [1980s and1990s],” Green said.
Green also said that multifamily builders and landowners need to pay attention to people entering their 60s.
Those 65 years old, on average, start to downsize their living situation, Green said, adding, “You want to think about people in their 60s as a target market for apartments.”
Green asked the audience a key question: Do Americans want to own a home right now?
“My forecast of homeownership is that it will get to 64 percent [in the U.S.] and will stay there,” Green answered, adding that this is a little lower than the average of the last 50 years.
California’s employment grew by 2 percent from April 2012 to this year, according to the Bureau of Labor Statistics, and that job growth needs to stay at least at 1 percent for residential construction to be at healthy levels, Green said.
He said the economy is still in recovery from the Great Recession of 2008 and there is a long way to go.
“I believe the economy doesn’t recover until the housing market recovers,” Green said.
He explained how the pulling of building permits is at about two-thirds of what it should normally be in a good economy.
“There [are] about 1 million permits being pulled right now in the U.S.,” Green said.
For those investing in apartments and multifamily housing, Green said the cost of doing business is low right now for new construction and renovations, but that you need to choose the right areas to build.
For example, Green said that it takes on average from 16 to 28 months to go through the development process to build a project in Southern California, compared to zero to 3 months in Texas.
For those who already own multifamily living complexes, Green said vacancy rates are low and landlords can push up rents now, but cautioned whether they should.
“You need the middle-class income to start rising [in order] to raise rents,” Green said. “On average, one-third of income should go toward rent.”
My biggest question going forward is related to education and post-graduate education. As the cost of college/university and post-graduate degrees exponentially (as opposed to gradually)rise, how are potential buyers in their mid-late 20’s and early 30’s going to qualify for home loans?
The Debt-to-income ratios will be through the roof with heavy, burdensome loads of student loan debt. You can potentially have a doctor making $150k/year not being eligible to qualify because they are carrying $350k+ of debt.
Well-qualified, with the “ability to repay” but DTI hovering around 90%.
Same would apply to other professionals: lawyers, architects, Biz Wizs with MBAs, engineers with Masters.
I haven’t looked at that scenario using the soon-to-be-here QM rules of the borrower’s ability to repay, which could be potentially a bigger black cloud.
Mind baffling and terribly unfair under the current underwriting standards.
Those same debt loads may cause those same folks to push back marriage and kids, making home-buying less of a priority until later?
My 20-something is graduating from college on Monday, debt-free!! We’ll follow her along to see, but her home-buying will have some advantages.
What realtor do you think your daughter will use? 😉
That’s a tad silly prognosis; because in the next twenty years there will be more of every age group. The US population, including immigration, is not the fabled ‘elephant in the snake’ shape; it is an endless elephant in the snake shape. So really builders should be considering the fact there will be more need for apartments, assisted-care living buildings, big ass houses, normal-sized houses, etc.
I suspect realtors will ready to sell any of them 🙂
Affirmative!