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How Demographic Changes Have Impacted the Apartment Market

Dec 20 2016

How Demographic Changes Have Impacted the Apartment Market


Few dispute the notion that demographics drive the apartment market. When looking at demand, the most fundamental statistics that analysts consider include population, household formation and employment. While these statistics tend to move hand in hand, sometimes patterns emerge that show a chasm in these numbers, and demographers are keen to report how these chasms may explain more about the underlying apartment fundamentals than the more macro trends.

One of the more interesting findings in this expansion can be found in the demographic statistics. Data on households shows that non-family households have grown at a disproportionately faster rate than family households. Non-family households include singles, roommates and any kind of cohabitation arrangement that does not include marriage or children. The graph below clearly shows that this divergence started when the housing market collapsed, but it continued throughout the subsequent eight years. This chart illustrates the common notion that Millennials have put off starting a family and buying a home. It also explains why the apartment market has thrived over the last 10 years, expanding by 12 percent from 2007 to 2016.

Looking at the metros shows a somewhat consistent pattern: those with the highest non-family household growth had some of the highest occupancy growth rates. These include Austin, Greensboro/Winston-Salem, N.C., Houston, San Antonio and Charlotte, N.C. Apartment occupancy in these metros grew by 20 percent or more from 2007 through 2015. However, these metros saw high overall growth rates in population and households as well, so occupancy growth was not necessarily driven by the non-family household growth trend.

The question that then emerges is: do metros that have disproportionately higher growth in non-family households show strong rent and/or occupancy growth patterns? The data suggests that the answer to this question is no. The two North Carolina metros—Charlotte and Greensboro/Winston-Salem—both have disproportionately higher non-family household growth than family household growth rates, as well as high occupancy growth. Charlotte’s rent growth was just above the U.S. average, but Greensboro’s rent growth is below the U.S. average rate. Moreover, other metros with wide gaps between non-family household and family household growth rates include Birmingham, Ala., New Haven, Conn., New Orleans, Wichita, Wis. and Richmond, Va.—none of which have posted strong apartment rent growth rates.

Looking at the correlation coefficients between non-family household growth by metro, along with occupancy growth and rent growth indeed shows that non-family household growth and occupancy growth have a correlation of 57 percent which is high but not conclusive. The correlation between rent growth and non-family household growth is only 20 percent. Taking a quick look at employment statistics shows that the correlation coefficient between employment and apartment occupancy growth is 55 percent, but the coefficient between employment growth and rent growth is 70 percent. San Francisco, Seattle, San Jose, Portland and Denver saw the highest rent growth from 2007 to 2015, largely due to tech-focused industries, but there was little to no gap between non-family and family household growth in these metros.

Thus, one could conclude that rents are driven more by economics—job and income growth—than demographics, which still drives occupancy. In short, the demographic shift that we have seen these last few years—fewer families and more “non-families” has changed the urban landscape dramatically. Nevertheless, the property markets are still ruled by economics, which may or may not move in step with the demographic changes.

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If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases. 

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment. 

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman:  You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

  • Painting and paint removal
  • Drywall repair
  • Minor appliance repairs (fixing a leaky toilet or faucet, among others)
  • Installing tiling or flooring, moldings, windows, doors
  • Refinishing decks, cabinets and other wood items

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

  • Serve as a handyman
  • Advertise vacancies in your units
  • Show apartments to prospective tenants
  • Review rental applications
  • Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. 

Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.

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