The Shift Toward Renter Nation
A consistent sentiment among multifamily housing leasing professionals is to know your resident and understand that one size does not fit all. The industry has strived in recent years to appeal as much as possible to individual preferences, especially in lease processes, while keeping a keen eye on the trends that drive folks to rental housing.
Understanding what drives residents and prospects to apartments is no easy task. In a world driven by personal preference and instant gratification, providing the right housing options may seem like a Herculean task. A huddle at July’s RealWorld conference in Las Vegas provided good insight on how today’s rental market came to fruition, and with it that understanding of what motivates today’s renters.
Transition to renting driven by necessity and preference
Scott Herring, Vice President, YieldStar Research Services, and Cameron McIntosh, Research Analyst, YieldStar Research Services, offered a thought-provoking retrospective of the single-family housing crash that began in 2007 and how it gave fuel to the creation of rent-intensive housing.
For property managers, the message flowing on the charts and graphs is that renters are either leasing because they can’t own or they don’t want the risk of owning homes. Couple that with an aging population segment that wants to downsize and let somebody else take care of maintenance and upkeep, you have today’s Renter Nation.
“The transition to renting was both driven by necessity and by preference,” said Herring.
That’s good fodder for property managers who need to understand why prospects are walking through the door and residents are living in their communities.
Paying mortgages and qualifying got tougher after recession
Among reasons for the shift to renting are that people were no longer able to manage mortgage payments or meet tougher financing standards following the recession, Herring said. Some have chosen the apartment lifestyle because of mobility needs, such as flexibility to change jobs and relocate, plus the preference to live without massive debt. For some, renting is a solution to better manage the struggle and loss from the bust.
Homeowners took a whipping as the recession began unwinding. They lost more than $7 trillion of equity invested – more than 40 percent of the 2016 Q1 Gross Domestic Product – when the dust settled. In the meantime, homeowners still owed lenders, and their mortgage amounts didn’t drop with home values. Foreclosures mounted, especially as over-valued markets along the east and west coasts were awash in financial tsunamis.
A contributor before the crash was the easy-credit phase of the run-up, which sent money flowing in disproportionally to single-family investments.
“Easy mortgage lending standards made it possible for individuals to become homeowners, individuals who might not currently qualify,” McIntosh said.
Demand for rentals continues to outpace supply
Although the economy has recovered in many parts of the country, it’s been a very slow journey from the bust. Nearly 10 years later, the rent mentality is still moving along, despite some of the lowest mortgage interest rates of all time.
Interest in shifting back to the single-family markets doesn’t appear to have much momentum, but one lender told me that he’s been “hopping” since 2012 because of increased mortgage activity. Still, the total value of home mortgages issued are 12 percent below the peak in 2008, whereas multifamily loans are up about 36 percent.
On the supply side, developers are reinforcing the multifamily momentum as apartment permitting has jumped more than 30 percent in the last eight years, while single-family permits are down by 17 percent.
“Despite aggressive construction and record level rent growth across the apartment world, demand for rentals continues to outpace supply,” Herring said. “There is clearly the need for more housing units, period.”
Property managers must learn to know their residents, prospects well
So what does this really mean?
Many understand that Renter Nation isn’t just about everybody gleefully jumping on renting apartments, or even single-family homes. Prospects won’t tell you that they are looking at your property because they lost their home, got a credit ding or no longer can qualify for a mortgage. Today’s renter is probably smart enough to figure out they can afford the rent – we know they’ve already done their research.
Too often, we hear that property managers make the mistake of first asking when a prospect wants to move in or how much is in the rent budget, immediate turnoffs. Perhaps the opening question should be, what do you want from your apartment living experience? You need to know their expectations.
The emotional and social scars left in both baby boomers, Gen Xers and Millennials have created a new narrative for how they have chosen to live, McIntosh says. As of now, the crowd is saying no to mortgages and yes to the flexibility of renting.
“Looking in the rearview mirror paints a clear picture of how the single-family crash gave fuel to the creation of Renter Nation, but going forward the questions become how to add transparency to shifting a new and historically opaque landscape,” McIntosh said. “The last decade will clearly change how we think about occupancy targets, rent pricing and development.”
And how well property managers know their residents and prospects.