There will be more 20-somethings over the next 20 years than at any time in the country’s history, which apartment developers and lenders need to remember when thinking about construction and rental prices.
This was one piece of advice that Dr. Richard Green, director of the Lusk Center for Real Estate at the University of Southern California, gave about 200 attendees at his talk on economic and macro apartment supply and demand at the Pacific Coast Builders Conference on Thursday.
“There will be about 2 million more 20-somethings this time around than the ones from the [1980s and1990s],” Green said.
Green also said that multifamily builders and landowners need to pay attention to people entering their 60s.
Those 65 years old, on average, start to downsize their living situation, Green said, adding, “You want to think about people in their 60s as a target market for apartments.”
Green asked the audience a key question: Do Americans want to own a home right now?
“My forecast of homeownership is that it will get to 64 percent [in the U.S.] and will stay there,” Green answered, adding that this is a little lower than the average of the last 50 years.
California’s employment grew by 2 percent from April 2012 to this year, according to the Bureau of Labor Statistics, and that job growth needs to stay at least at 1 percent for residential construction to be at healthy levels, Green said.
He said the economy is still in recovery from the Great Recession of 2008 and there is a long way to go.
“I believe the economy doesn’t recover until the housing market recovers,” Green said.
He explained how the pulling of building permits is at about two-thirds of what it should normally be in a good economy.
“There [are] about 1 million permits being pulled right now in the U.S.,” Green said.
For those investing in apartments and multifamily housing, Green said the cost of doing business is low right now for new construction and renovations, but that you need to choose the right areas to build.
For example, Green said that it takes on average from 16 to 28 months to go through the development process to build a project in Southern California, compared to zero to 3 months in Texas.
For those who already own multifamily living complexes, Green said vacancy rates are low and landlords can push up rents now, but cautioned whether they should.
“You need the middle-class income to start rising [in order] to raise rents,” Green said. “On average, one-third of income should go toward rent.”