The inherent flexibility of renting a property as opposed to buying it showcases itself in generational differences in home-hunting habits. Although it may be easy to assume that only younger Americans are skewing towards rentals – after all, subscription-based services are the new norm in everything from food to entertainment – older property hunters are leaning towards renting as well.
By the end of this year, multifamily construction projects are expected to peak at a rate nearly two-thirds higher than anything seen during the past 20 years. This is an associated shift in demand due to multifamily construction being more conducive to renting (as opposed to owning.) Although this trend may come as a surprise to some professionals in the real estate space, a 2017 CNBC report states that baby boomers have been disrupting the multifamily sector for quite some time.
This generation, the report says, is selling their large, family homes in suburban areas and trading their empty nests for maintenance-free apartment living. This includes tasks that are monotonous (and increasingly difficult with age) including raking, shoveling, and cleaning up after storms.
But what does this mean for mortgage brokers and borrowers? Simply put, mortgage professionals must keep a keen eye on this demographic and their purchasing habits, as the share of older Americans is expected to increase. By 2050, the 65 and older demographic is expected to surpass 88 million people – this is more than double the group’s 2010 population, according to data from the U.S. Census Bureau.
Far-removed from ‘empty nest syndrome’ (while also being the cause of those empty nests), millennials – the largest generation in U.S. history – are choosing rental properties because of lifestyle differences and economic disadvantages, mainly high levels of student debt. According to a study from the Federal Reserve, for every 10 percent increase in student loan-related debt a person holds, their odds of becoming a homeowner drops one to two percentage points during the first five years after they leave their college/university. Although student loan debt raises concerns about the financial stability of subsequent generations, it is important to note that every one percent drop in the home ownership rate creates a need for 1 million new rental units.
Despite these financial strains, millennials, baby boomers, and every group in between state that they enjoy the amenities associated with rental properties; proximity to shopping, resturants, and grocery stores helps transportation-related worries dissipate, and allows for intergenerational interaction.
This proximity to retail and dining (among other ‘bonuses’) has led to a peculiar phenomenon – enter the age of the “amenities war.” Rental companies are vying for the business of prospective tenants, and are ramping up their efforts to provide the best in fitness and wellness, the popularity of which has exploded in the last decade. This is married with the emerging “smart home” market, which sees Star Trek-esque gadgets implemented throughout properties (ranging from app-controlled locks to automatically-adjusting lights.)
As rental units become increasingly connected to the digital world, the inhabitants of those units are fully embracing the concept of “live, work, play.” The city is no longer merely where people work, it is an all-inclusive destination for business, entertainment, and the routines of everyday life.
Although construction increases vary on a state-by-state basis, California has struggled to keep up its housing supply when compared to the state’s increase in both jobs and population. According to California Real Estate Magazine, the state added 8.7 percent more jobs and 9.1 percent more people from 2007-2017, yet only increased its housing stock by 5.3 percent.
These statistics may give the appearance of a bleak housing market, but the same California Real Estate article noted that communities are making an effort to construct properties that are more accessible to the average Californian (many properties, especially near larger cities, are targeted towards high-net worth individuals and foreign investors.)
Although it may seem paradoxical, cities that do have urban growth boundaries see around 38.6 percent more total developments than cities without these boundaries. Although the word ‘boundary’ has negative connotations, pushing builders towards already-populated areas is a positive for not only the increase in sheer units, but the environment as well (proximity to transportation and business hubs helps reduce the amount of cars needed in a given area.)
Overall, mortgage professionals cannot expect the workforce to grow if the housing supply does not grow as well. There is no shortage of opportunity for those who are following the demographic shifts taking place in the Southern California housing market, and there is no mortgage lender better qualified to help you navigate this market than Alta Capital Group, located in Tustin, California. With a litany of direct private loans (including fix & flip, short-term and long-term rental, and multifamily), flexible underwriting, and a relationship-driven approach, our team of experienced loan professionals are ready to answer any questions you may have about this multi-faceted market.
We close within 5-10 days and write a letter of intent within 24 hours. Call us to learn about the Alta Advantage, and see why the majority of our clients come back for repeat business. (844) 402-2582