Multifamily Investments of the Future

TruePoint Capital

Multifamily investments have historically been one of the most stable commercial asset classes – especially properties located in the right areas with the right demographics. And since the Financial Crisis, it’s standing as a preferred commercial asset class has only solidified due to increasingly favorable trends and demographics the likes of which this country has never seen.

Due to these favorable trends and demographics, multifamily investments should be the investment of choice for the next 15 years at the minimum.

​​Here are the most relevant trends:

Trend 1. Home Affordability. Homeownership has become less and less affordable since the Financial Crisis despite low unemployment and a strong economy. That’s because home prices have outpaced income growth by more than 2:1 on an annual basis. From the period between 2012-2017, incomes rose at a higher rate of 2% annually, while home prices rose 5% annually.

Trend 2. Baby Boomers. The oncoming tsunami of retiring Baby Boomers is poised to cause ripple effects on the housing market on multiple fronts for decades.

​​Baby Boomers, the largest demographic group in U.S. history numbering around 77 million, are aging, with 40% of all them (~ 30 million) is set to retire in the next five years. As an age group, those over 55 as a group rent more than they own as many seek to downsize or sell their homes to extract equity to fund their retirement lifestyles.

​​And there are signs that Baby Boomers will rent at higher rates than past generations in the same age group because, as a group, Baby Boomers are less financially prepared for retirement with less than 30% on track for retirement and 50% expected to live off social security exclusively.

Trend 3. Millennials. Millennials (i.e., Echo Boomers), the second-largest demographic group in U.S. history, are moving into the 18-30 range. This age group has historically constituted the largest group of renters.

​​They not only rent more in numbers but also rent for longer durations before purchasing a home – typically, 5 to 7 years. And there are signs this Millennial generation of 18-30-year-olds will rent at higher rates and longer durations than past generations of the same age group.

Burdened with student loans and with home prices far outpacing wages, many Millennials can’t afford to buy their first home. As for Millennials that can afford to buy, many are simply choosing not to because they don’t want to be tied down since the average Millennial changes jobs every two years.

Trend 4. Immigration. U.S. Immigration is continuing to increase and is expected to grow year over year into 2030 despite threats of a border wall. Immigrants, as a group, rent far more than they own.

Trend 5. Renter Nation. The growth of the renter population is now outpacing the owner population. More U.S. households are renting than at any point in 50 years.

​​Simply put, the U.S. is becoming a renter nation, and there are no signs of slowing. Demand for multifamily properties is unprecedented, with demand consistently swallowing up supply as soon as it becomes available. This is evident in the multifamily’s consistently positive Net Absorption rate.

Trend 6. Weak New Supply. It should come as a surprise that multifamily housing starts are lower than from a year ago. This can be due to tougher entitlements processes in suburban areas.

Trend 7. Lack of Affordable Housing at Crisis Levels. Nowhere is the gap between demand and supply higher in the multifamily class than in the affordable housing segment. Since the Financial Crisis, this gap has consistently widened, leading to widespread shortages in the affordable housing segment. This shortage of supply will ensure that in the next downturn, affordable multifamily housing will actually thrive.

The multifamily segment has never seen demographics or been in the midst of trends like these before. Additionally, multifamily investments are historically one of the most stable of the commercial asset classes – less correlated to volatile economic cycles, especially when compared to retail and office assets.

​​As a result of these unprecedented trends and demographics, multifamily investments will provide stability and shelter even as other economic sectors suffer through downturns.

All these factors give multifamily investors reason for optimism.

​​Favorable demographics with a widening gap between demand and supply will ensure positive absorption for years to come, ensuring low vacancy rates, consistent cash flow, and steady appreciation. ​​

Take control of your portfolio and invest with intention.

Kyle Jones