Two studies reveal that the US rental market requires a massive injection of properties over the next two decades to meet burgeoning demand. Based on current trends, the US needs 4.6 million more apartment units by 2030 to satisfy demand from rental households.
Two major housing studies have produced data that shows a country with acute lack of rental housing supply. The National Apartment Association (NAA) and the Joint Center for Housing Studies (JCHS) at Harvard University both presented studies in June with similar conclusions.
Current trends pressure rentals
Current social and financial trends are exerting considerable pressure on the US rental market. Two trends among the largest population groups, the baby boomers (those over 55) and the millennials (those under 35), are largely responsible for the huge rise in demand for rental property.
As they reach retirement, baby boomers are looking to downsize. Rental apartments appeal hugely to this group, particularly in areas with warm temperatures year-round and good leisure amenities such as Florida. For their part, millennials are delaying marriage and forming families with the subsequent growth in demand for rental apartments.
More renters than ever
Since 2005, some 10 million new households have joined the US rental market. Renters now number 43.3 million households, some 37% of the total. Homeownership in 2016 dropped to 63.4%, its lowest rate since 1965.
Rentals among baby boomers have risen by 22% since 2005 and this generation currently accounts for 44% of the rental market share. Millennials make up a quarter of the market.
Low supply on the US rental market
Rental vacancies fell to 6.9% in 2016, the lowest rate for 30 years. The supply was lower in many popular metro areas such as Orlando and Jacksonville in Florida, both of which registered vacancy rates of just over 5%.
The situation on the resale property market mirrored the rental trend. There were 1.65 million homes on the market last year, the lowest number for 16 years. And there’s little sign of supply levels improving.
Although the number of new starts increased in 2016 by 9.4%, the 781,600 units still lie considerably below the average of 1.4 to 1.5 million units started annually during the 1980s and 1990s. According to the JCHS, new-build starts over the last decade lag behind rates seen over any 10-year period since the 1970s. The study adds that the supply of new single-family homes is particularly weak.
“Any excess housing built during the boom years has been absorbed,” commented Chris Herbert, Managing Director of JCHS. “A stronger supply response is going to be needed to keep pace with demand.”
US rental market needs 4.6 million units
The NAA study puts a figure on the required response. They reveal that if current trends continue, the US rental market will need 325,000 new apartment units a year. Between 2012 and 2016, the country averaged around 244,000 units annually. In total, the US will need to build some 4.6 million new apartments between now and 2030.
According to the NAA, demand is highest in the country’s most popular metro areas for relocation (because of strong job creation) or retirement. Raleigh in North Carolina tops the list with the requirement for 69.1% new units over the next 20-odd years. Orlando takes second position and needs 56.7% more rental apartments. Houston also features in the rankings – some 214,176 new rental properties are needed here.
“The US rental market is obviously under great pressure and this situation presents excellent opportunities for buy-to-let and build-to-let investors,” says Dies Poppeliers, Managing Director of BRIC Group. “Both investment opportunities in the right locations have ready markets, making them one of the most viable options currently available in the US.”
BRIC Group, an investment company specialising in global real estate opportunities, offers US real estate investments including turnkey properties in Florida and Houston, and land plots in Florida. BRIC Group is also developing The Coral resort, in Northeast Brazil, a luxury beachfront resort with land and villa investment opportunities. BRIC Group has been creating wealth for its clients since 1996 and has offices in Brazil, Dubai (consulting office), Hungary, Spain and the US.