The Shifting Renter’s Market
- Jun 20, 2012
One of the driving forces behind today’s multi-family market is the shift in the renter’s market itself. The demographic shift those in the 19 35 age range that are choosing to push or simply remain in the renting market is a positive force that will continue to push the need for multi-family housing. In addition, it is a strong sign that points to continuing stability, as well as a demand moving forward.
Part of this trend is the realization by many that the American Dream that is, owning a home may not be all it’s cracked up to be. There is a segment of our population, many from the Great Depression, that sees renting as a preferred way of securing housing. They want the freedom, comfort and flexibility that only renting offers. As a result, this is providing a strong secondary force that will continue to support the current market.
What do these factors mean for the real estate investor? The current demographic shifts will continue to support demand. As a result, we are seeing higher rates of return in multi-family investments that is currently more than some of the other product types.
All in all, these two demographic shifts alone are significant; I believe they may add anywhere between 300 and 400 basis points to the internal rate of return (IRR) for a multi-family asset. There is no doubt that we won’t see this in either office or retail. Unfortunately, these demographics are actually working against those product types, and as a result, we may see a decrease in the IRR based on demographic shifts. For those on the investment side, multi-family will continue to be a safe investment that will no doubt grow as we move forward.