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APARTMENT DEMAND
FOR THE NEXT 15 YEARSCANWEMEET THENEED?
#LiveAtUrban
U.S. APARTMENT DEMAND– A FORWARD LOOK
Prepared by: Hoyt Advisory Services, Dinn Focused Marketing Inc.,
Whitegate Real Estate Advisors, LLC
July 2017
APARTMENT DEMAND* FOR U.S., STATES & 50 METROS
Hoyt Advisory Services Team:
*Defined for this study as rental apartment buildings that include 5 or more units.
7/13/2017 2
Dr. Norm Miller Dr. Jeffrey D. Fisher Michael J. Dinn, CRE® Paige Mueller, CRE®
University of San Diego
Ernest Hahn Chair and
Professor of Real Estate
Finance
Indiana University
Professor Emeritus
Whitegate Real Estate
Advisors, LLC
Dinn Focused Marketing, Inc.
KEY FACTORS AND ASSUMPTIONS
▪ Study focuses on Properties with 5+ Units▪ Population, households, size & headship rates (at US, State & MSA level)
Renter vs OwnerBy age, race & nationality
▪ Components of change: natural increase, migration & immigration
▪ Tenure: The Rent vs Own Decision (Forecast at US, State and MSA level)Public PoliciesInflationAge, race & nationalityHousehold balance sheetsHousing prices & costsOther economic & capital market factors
7/13/2017 3
KEY FACTORS AND ASSUMPTIONS, CONTD.
▪ Homelessness
▪ Natural vacancy
▪ Obsolescence
▪ Characteristics of Renters and Rental Housing
▪ What is the size of the current stock?Which data source is more complete?Size & quality variancesConsistency among geographies and between real estate to demographic data
▪ Given the mature nature of the economic cycle, we assume two recessions occur by 2030
7/13/2017 4
March 2, 2017 5
O: 1 Detached52%
O: 1 Attached4%
O: 2-41%
O: 5+2%
O: Mobile Homes / Other
4%
R: 1 Detached10%
R: 1 Attached2%
R: 5+16%
R: Mobile Homes / Other
2%
RENTAL BUILDINGS WITH 5 OR MORE UNITS ACCOUNT FOR 16% OF TOTAL U.S. HOUSING INVENTORY
US POPULATION IS AGING
7/13/2017 6
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1960 1970 1980 1990 2000 2010 2016 2020 2030
Perc
ent
Ho
use
ho
lds
Households by Age of Householder
Under 25 25 to 29 years 30 to 34 years 35 to 44 years
45 to 54 years 55 to 64 years 65 to 74 years 75 years and olderSource: U.S. Census Bureau
65% OF THE RENTAL POPULATION IS 35 YEARS OR OLDER
7/13/2017 7
9%
26%
20%
17%
13%
8%
4% 3%
Renter Population by Age
15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+Source: U.S. Census Bureau
YOUNGER HOUSEHOLDERS CONTINUE TO DELAY MARRIAGE
AND …
7/13/2017 8
20
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25
26
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29
30
19
80
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11
r2
01
22
01
32
01
4s
20
15
20
16
Age at First Marriage
Men WomenSource: U.S. Census Bureau
YOUNGER HOUSEHOLDERS CONTINUE TO DELAY CHILDBIRTH
7/13/2017 9
Mean Age by Birth Order 2010-2014
Source: CDC/NCHS, Natl Vital Statistics System
7/13/2017 10
MULTIFAMILY DEMAND CONCENTRATED IN HOUSEHOLDS
OVER 35 YEARS
(1,000)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2000-10 2010-20 2020-30
00
0s
Change in Rental Households by Age Cohort
<25 25-34 35-44 45-54 55-64 65+Source: U.S. Census Bureau
DEMOGRAPHIC FUNDAMENTALS: SLOWING GROWTH, MORE
DEPENDENT ON IMMIGRATION
7/13/2017 11
0
500
1,000
1,500
2,000
2,500
19
70
19
73
19
76
19
79
19
82
19
85
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88
19
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97
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00
20
03
20
06
20
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20
12
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15
20
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20
21
20
24
20
27
20
30
US Natural Internal Population Increase vs Immigration (000's)
Net International Migration Natural Increase
forecast
Source: U.S. Census Bureau, Moody’s, U.S. Dept. of Homeland Security, Hoyt Advisory Services
INTL IMMIGRATION CREATES MORE OF THE GROWTH IN
SLOW-GROWTH STATES
7/13/2017 12
5 % - 10%
INTERNATIONAL IMMIGRANTS MORE LIKELY TO BE RENTAL
HOUSEHOLDS
7/13/2017 13
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Renter Rates in 2015 by Select States
Moved from Abroad Domestic RentalsSource: U.S. Census Bureau
HOMEOWNERSHIP RATES ARE LOWER FOR NON-WHITE
HOUSEHOLDS
7/13/2017 14
0
10
20
30
40
50
60
70
80
Non-Hispanic White Alone Black Alone Asian/NativeHawaiian/Pacific Islander
Hispanic (of any race)
Per
cen
t
Homeownership Rate 2016 Avg
Source: U.S. Census Bureau
7/13/2017 15
MULTIFAMILY OWNERS MUST CATER TO A CHANGING TENANT BASE
Hispanic households will account for 55% of all population growth through 2030
(500,000)
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2015 2017 2019 2021 2023 2025 2027 2029
YoY
Pop
ula
tio
n C
han
ge
White Non-Hispanic Black, not Hispanic All Other Hispanic, any Race
Source: U.S. Census Bureau
WHILE HOUSEHOLDS ARE SMALLER FROM DELAYED
FAMILIES AND AGING …
7/13/2017 16
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1960 1970 1980 1990 2000 2010 2016
% o
f To
tal H
ou
seh
old
s
Number of People in Household
Households by Size
One Two Three Four Five Six Seven or moreSource: U.S. Census Bureau
AVERAGE HOUSEHOLD SIZE IS LARGER FOR NON-WHITE AND
HISPANIC SECTORS
7/13/2017 17
1.00
1.50
2.00
2.50
3.00
3.50
White Non-Hispanic Black, not Hispanic All Other Hispanic, any Race
Household Size
2014 2015
Although household size is declining even in the Hispanic sector
Source: U.S. Census Bureau
THE OWN VS. RENT DECISION:POLICY CHANGES DRIVE 70% OF VARIANCE IN HOMEOWNERSHIP
7/13/2017 18
59
60
61
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63
64
65
66
67
68
69
-5%
0%
5%
10%
15%
20%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Ho
meo
wn
ersh
ip R
ate
%
U.S. Homeownership Rate
30 yr Mortgage Rate GDP Growth Home Ownership Rate
Lines indicate a change in national legislation that impacted lending and/or housing markets factored into the homeownership estimation model
Hangover from 2008 Recession: Slow recovery for first-time homebuyers
▪ Highest unemployment rates in under 35 age cohorts
▪ 15-24 and 45-54 age cohorts had the slowest recovery in median household
income from 2005 to 2010
▪ Student loans as % of GDP doubled from 2006 to 2012
Long-term factors slowing homeownership rates:
▪ Household Income growth since 1970 is only occurring in households in the 80th
percentile and higher of incomes
▪ Age at first marriage up from 25 in 1980 to 29 in 2016 for men
▪ Women’s age of first childbirth has increased to over 26
▪ International immigrants are much more likely to rent
7/13/2017 19
DEMOGRAPHICS DRIVING HIGHER RENTERSHIP RATES
STEEP DOWNTURN IN HOME OWNERSHIP SINCE 2005 FOR
YOUNGER HOUSEHOLDS
7/13/2017 20
HAS notes cyclical pressures are easing with unemployment rate relatively low and more stabilized homeownership rates for younger householders.
30
40
50
60
70
80
90
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U.S. Homeownership Rate by Age Segment
Under 35 35-44 45-54 55-64 65+
Source: U.S. Census Bureau
7/13/2017 21
HOMEOWNERSHIP RATES WILL CONTINUE TO DECLINE SLIGHTLY
Upward Pressure:
▪ Aging population
▪ Low jobless rate
▪ Rising inflation?
Downward Pressure:
▪ Pop growth from immigration
▪ Higher rental rates for non-white households
▪ Delayed family formations
▪ Lower inflation rate
▪ Inevitable rise in interest rates
▪ Low housing affordability in many sectors
Uncertainties:
▪ Public policy on lending and immigration
55%
57%
59%
61%
63%
65%
67%
69%
20
07
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7/13/2017 22
4.6 MILLION MULTIFAMILY UNITS NEEDED BY 2030
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
Apt 5+ Units Needed
7/13/2017 23
> 1 MILLION UNITS NEEDED IN TOP 5 MARKETS
- 50,000 100,000 150,000 200,000 250,000 300,000
PhiladelphiaRiversidePortlandChicago
San AntonioDenverBoston
MinneapolisCharlotte
San FranciscoSan Diego
TampaRaleigh
Las VegasSeattleAustin
Washington, DCOrlandoPhoenix
Los AngelesAtlanta
Miami-Ft. LauderdaleHouston
Dallas-Ft. WorthNew York
# Units Needed 2016-2030
7/13/2017 24
NEW UNITS NEEDED THROUGH 2030
0-10
11-10
21-40
41-80
80+
000s
7/13/2017 25
NEW UNITS NEEDED THROUGH 2030 % GROWTH
0-0.5
0.6-1.0
1.1-1.5
1.5-2.0
2.1+
% pa
7/13/2017 26
TOP LINE NUMBERS HIDE IMPORTANT NEEDS:BOOMER MARKETS: GROWTH DOMINATED BY 65+ AGE GROUP
7/13/2017 27
GROWTH DOMINATED BY 65+ AGE GROUP
-8
-6
-4
-2
0
2
4
6
8
10
20
16
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30
Tho
usa
nd
s
Detroit - New Rental Households
15-24 25-34 35-44 45-54 55-64 65+
Source: Moody’s Analytics, U.S. Census
• Generally low growth markets - but will be need for 65+ renter housing
• Growth in 65+ group is nearly the same or larger than growth in all other age segments
• Outmigration of young workers (15-34)
• Often heavily dependent on international in-migration for growth
• Often high homeownership rates
• Generally high proportion of renters have incomes < $25,000
• Often older housing stock
GEN – Z MARKETS
March 2, 2017 28
7/13/2017 29
GEN-Z MARKETS
Source: Moody’s Analytics, U.S. Census
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Tho
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New Rental Households
15-24 25-34 35-44 45-54 55-64 65+
• >30% of renter HH growth will come from 15-34 age group
• High growth markets
• Generally 65+ group is small part of renter household growth
• Generally newer rental stock in place / lower STAR % markets
• Land available for new development
• Less dependence on international in-migration as markets have strong domestic migration and natural growth
• More affordable markets (as measured by % of income paid for rent)
COASTAL MARKETS MORE LIKELY TO HAVE SUPPLY POLICY
RESTRICTIONS
7/13/2017 30
RENTAL PROPERTIES LESS AFFORDABLE IN MARKETS WITH
SUPPLY RESTRICTIONS
7/13/2017 31
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30% 35% 40% 45% 50% 55%
Sup
ply
Re
stri
ctio
n In
de
x
% Households Spending 35%+ of Gross Income on Rent
Supply Restrictions and Affordability
SUPPLY RESTRICTED MARKETS TEND TO HAVE LESS
INVENTORY GROWTH
7/13/2017 32
RENTERS IN SOME AREAS SPEND SIGNIFICANT SHARE OF
INCOME ON RENT
7/13/2017 33
7/13/2017 34
AFFORDABILITY ISSUES VARY
Low Income
High Income
Regulatory
Land Availability
SAMPLE – HIGH PRODUCTIVITY / LOW AFFORDABILITY
MARKETS
March 2, 2017 35
0%
5%
10%
15%
20%
25%
30%
35%
40%
< $20 $25-49.9 $50-$74.9 $75-$99.9 $100 to$149.9
$150+
% o
f To
tal R
ente
r H
ou
seh
old
s
Houshold Income (000s)
San Francisco Renter Households by Income
US San Francisco
• 43% of San Francisco renter household incomes are > $75,000
• At 35% of gross income = $2,187 monthly rent for a household earning $75,000
• 31% earn < $35,000 = $1,021 monthly rent for a household earning $35,000
NEW CONSTRUCTION UNAFFORDABLE TO MOST HOUSEHOLDS
March 2, 2017 36
• No listings in San Francisco SOMA market for < $2,000 per month.
• 2 listings less than $2,200
AVERAGE RENTS REQUIRE HIGH INCOMES
March 2, 2017 37
SubmarketRent per
Unit $
Central San Mateo 3,025.48
Civic Center/Downtown 3,110.60
Haight Ashbury/Western Addition 4,060.86
North Marin 2,753.09
North San Mateo 2,608.75
Russian Hill/Embarcadero 3,402.46
South Marin 3,274.63
South of Market 3,848.47
South San Mateo 3,567.09
West San Francisco 3,458.93
Total: San Francisco 3,279.57
Average San Francisco rent requires a household income of $112,000 = < 30% of households
Source: CBRE Econometrics
SERVICE PROVIDERS CANNOT AFFORD HOUSING IN LOW
AFFORDABILITY AREAS
7/13/2017 38
▪ A Redfin study found that only 17% of California homes for sale were affordable to an average teacher in 2016, down from 30% in 2012.
▪ Affordability is worse in major metro areas
Teacher Salary % of Income Needed for Average RentSan Francisco 48%Alameda 67%Contra Costa 69%
▪ With average incomes of just over $71,000 in the San Francisco Bay Area, teachers can afford rents that are 48% of average rents in San Francisco and about 67% of average rents in the East Bay*
Sources: Redfin, CBRE Econometrics, HAS. *Assumes paying 35% of after-tax income on rents in Walnut Creek, San Ramon and East Alameda Co.
WHEN OWNED AND RENTAL HOUSING IS UNAFFORDABLE, STATES RISK OUT-MIGRATION
March 2, 2017 39
Los Angeles New York
31% OF RENTERS EARN LESS THAN $20,000
7/13/2017 40
RENOVATION NEEDS: 11.7 MIL UNITS BUILT BEFORE 1980
7/13/2017 41
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
O: 1 O: 2-4 O: 5+ O: M / OTH R: 1 R: 2-4 R: 5+ R: M / OTH
Housing Stock Composition by Age and Type of Property
B1939 1940-59 1960-79 1980-99 2000s 2010+
O: owned, then by unit count
R : rented, then by unit count
Source: U.S. Census Bureau
7/13/2017 42
OLDER RENTAL STOCK CONCENTRATED IN THE NORTHEAST
1-4 UNIT BUILDINGS NOT PART OF INSTITUTIONAL STOCK = 24% OF
RENTAL MARKET, ALMOST AS LARGE AS SINGLE-FAMILY RENTALS
March 2, 2017 43
Single-family Attached
6%
2 Rental Units8%
3-4 Rental Units10%
5-9 Rental Units12%
10-29 Rental Units11%
20-49 Rental Units8%
50 or more Units12%
Mobile Home or Other
5%
2015 National Distribution of Occupied Rental Housing Stockby Type
Source: U. S. Census Bureau, 2015 American Community Survey 5-year Estimate
SECOND TIER AFFORDABLE RENTALS
7/13/2017 44
Better rental data reveals a large share of smaller rental housing found in older neighborhoods. Design and age often obscure this stock from survey, yet it remains an affordable choice for less affluent renters. Estimates of up to 44% of all existing national rental stock are STAR units, led by California, New York, Michigan and Ohio.
First Tier Multifamily39%
Second Tier Affordable Rentals
25%
Rental Homes36%
Second Tier Affordable Rentals: STARSource: U.S. Census Bureau, CoStar
STAR UNITS > HALF OF MARKET IN SOME CA MARKETS
March 2, 2017 45
APARTMENT DEMAND
FOR THE NEXT 15 YEARSCANWEMEET THENEED?
#LiveAtUrban
Affordable Apartment Demand: A Practioner’s Perspective
Priya Jayachandran
Senior Vice President, Housing Development
Volunteers of America
July 13, 2017
• Introduction
• Context
• Subsidized Housing Experience
• Workforce Housing Experience
• Ideas for Future
Agenda
Context: Affordable rental units are disappearing
Housing Units (Thousands) % of Housing Stock % of Rental Stock
2001 2013 Yearly change 2001 2013 2001 2013
Non-market, extremely low rent, and very low rent 21,597 19,218 -198.25 18.3% 14.5% 57.8% 43.1%
Extremely low rent and very low rent 13,264 11,680 -132 11.2% 8.8% 35.5% 26.2%
All rental units 37,392 44,564 597.67 31.6% 33.5% 100.0% 100.0%
Housing Stock 118,196 132,832 1,219.67 100.0% 100%
Source: Eggers, Frederick J., and Moumen, Fouad. “American Housing Survey Rental Market Dynamics: 2011-2013”
3
Subsidized Housing (Section 8, 202, LIHTC, etc)
• All federal rental assistance programs (but for a small 811 program) have
been repealed or unfunded
• Current funding supports renewals of existing contracts which serve only 1
in 4 families who need assistance
• LIHTC is the single largest driver of new affordable housing production but
has not kept pace with growth in demand
• Increasingly competitive landscape for new construction and preservation
• Challenges:
• Outcomes
• Scarcity
• Perception
Workforce Housing• aka Natually Occuring Affordable Housing (NOAHs)
• Typically defined within range of 60% to 120% AMI
• Predominantly Class C properties
• Hyper competitive landscape for acquisitions
• Challenges
• Quality
• Permanent Affordability
• Competition
• Outcomes
Ideas• Branding
• Innovation
• Questioning status quo
APARTMENT DEMAND
FOR THE NEXT 15 YEARSCANWEMEET THENEED?
#LiveAtUrban
1
Multifamily Market Response
July 2017
2
Take-aways
1. The Great Recession led to twin shocks (demand and supply) that stretched
and tightened multifamily rental markets.
2. The market has responded -- new construction is slowing rent growth and
slowing property value increases.
3. Today’s low yield environment (particularly in multifamily) is helping the
situation — spurring development at lower rent levels than would otherwise
be the case.
4. Over time, housing costs rise faster than inflation and incomes. Given
history we should expect and plan for that.
5. The market reaction only reaches a portion (and likely shrinking portion) of
overall demand.
3
The Great Recession led to twin shocks
(demand and supply) that stretched and
tightened multifamily rental markets.
4
Number of Owner and Renter Households, by Income and Level of
Housing Cost Burden, Selected Years (millions)
Source: MBA and Harvard’s Joint Center for Housing Studies
15 10 5 0 5 10 15 20 25 30 35 40
20 1520 1420 1320 12
20 0820 0320 01
20 1520 1420 1320 12
20 0820 0320 01
20 1520 1420 1320 12
20 0820 0320 01
20 1520 1420 1320 12
20 0820 0320 01
20 1520 1420 1320 12
20 0820 0320 01
No burden
Moderate burden
Severe burden
Less than
$15,000
$15,000 -
$29,999
$30,000 -
$44,999
$45,000 -
$74,999
$75,000
and over
Renters Owners
5
The market has responded -- new construction
is slowing rent growth and slowing property
value increases.
6
Multifamily Vacancy Rates and Units Under Construction
Source: Census
7
Multifamily Market Fundamentals
(generally professionally managed properties)
Source: REIS, NCREIF, Moody’s/Real Capital Analytics
Vacancy Rates (Percent) Year-over-year Asking Rent Growth
Year-over-year NOI Growth Among NCREIF Properties Property Prices (Index: 2007Q3 = 100)
0
1
2
3
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Q1
Apartment
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
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Q1
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Q1
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Q1
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Q1
Apartment
-10%
-5%
0%
5%
10%
15%
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03
Q1
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04
Q1
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05
Q1
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Q1
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Q1
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Q1
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Q1
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Q1
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Q1
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Q1
Apartment
0
20
40
60
80
100
120
140
160
180
20
04
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Apartment
8
Today’s low yield environment (particularly in multifamily) is helping the situation — spurring development at lower rent levels than would
otherwise be the case.
9
10
Capitalization Rates for Apartment Properties
(4 quarter moving average, current value cap rates)
Source: NCREIF
11
Capitalization Rates in Selected Markets, H2 2016
Class A CBD Office (blue) and Class A Multifamily Infill (red)
Source: CBRE
12
Over time, housing costs rise faster than
inflation and incomes. Given history we should
expect and plan for that.
13
Annualized One and Ten Year Change in Shelter Costs
Source: BLS
14
Ten Year Change Shelter Costs and All Items Less Shelter
Source: BLS
- Population growth
- Urbanization & land costs
- Quality improvements
- more
15
Ten Year Change in Shelter Costs and All Items Less Shelter
– And Median Household Income
Source: BLS
16
The market reaction only reaches a portion (and
likely shrinking portion) of overall demand.
17
Number of Owner and Renter Households, by Income and Level of
Housing Cost Burden, Selected Years (millions)
Source: MBA and Harvard’s Joint Center for Housing Studies
18
Contact Information
Jamie Woodwell
Vice President | Commercial Real Estate Research
MBA
202-557-2936
APARTMENT DEMAND
FOR THE NEXT 15 YEARSCANWEMEET THENEED?
#LiveAtUrban
APARTMENT DEMAND
FOR THE NEXT 15 YEARSCANWEMEET THENEED?
#LiveAtUrban
