State of the U.S. Housing Market: Identifying Investment Opportunities in Rental Housing

Contributors

Hailey Ghalib, AIA
Executive Managing Director, Portfolio Management & Development

John Kirk, CAIA, CCIM
Senior Director

Mark Fitzgerald, CFA, CAIA
Senior Director, Research

Will McIntosh, Ph.D
Global Head of Research

August 2019

Investment Thesis

A broad demographic coalition – consisting of Millennials, Generation Z, and aging seniors within the Baby Boomer and Silent Generation cohorts – combined with inadequate housing supply has given rise to enduring investment opportunities across the rental housing spectrum (e.g., Multifamily, Senior, Workforce, Single-Family Rental, and Student Housing) that should persist for years to come.This paper will evaluate investment conditions across the previously mentioned rental housing sectors, focusing on the long-term outlook, demand drivers, and developing trends that will likely impact the broader housing market going forward. It will conclude by identifying a prudent approach for capturing the opportunity across U.S. rental housing sectors. This list of opportunities also includes short-term rental housing, which is generally a subset of the multifamily segment. Additionally, workforce housing often includes both single-family and apartment rentals.

Market Overview

I. Demographics Drive Demand

The Millennial generation (approximately 73 million people) is the largest cohort in the U.S. labor force, and nearly 65% of them are renters today. This group consists primarily of young people in their late 20s to mid-30s who have delayed getting married and having children relative to previous generations, while overwhelmingly opting to rent versus own a home. Due, in part, to entering the workforce after the Global Financial Crisis (GFC), the Millennial generation has faced financial struggles, including record levels of student loan debt, poor credit scores, and difficulty saving for a down payment required to purchase a home. Therefore, many of them will likely rent for extended periods of their lifetime, in both apartments and single-family residences.

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