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Forecasting The Future of Rental Demand

Published on Friday - December 13, 2013

Investors are well aware of the direction buy-and-hold properties are trending. Current market conditions have awarded savvy investors high returns for a number of years. Subsequently, Harvard’s Joint Center for Housing Study recently released a biennial housing report that forecasts the market’s next moves. According to the study, the torrid pace of the multi-family housing market is expected to slow, but the housing sector is still projected to see an additional 4.7 million renters over the next decade.

Despite encouraging signs, the study acknowledges a particular concern regarding the prospects of overbuilding the multi-family housing sector. The amount of time it takes to construct multi-family units makes it increasingly difficult to account for the actual volume of new buildings coming onto the market. In short, the inability to predict how many multi-family unites the market will require can lead to unnecessary overspending.

The study also finds that “vacancy rates do appear to be bottoming out and rent increases are slowing in many markets, suggesting that supply and demand are moving into balance.” Unfortunately, low-income rentals and affordable senior housing continue to demonstrate a propensity for low rental availability. Populations requiring these types of units are finding them increasingly hard to find.

The report notes that the “growing number of seniors on fixed incomes is likely to outstrip the limited supply of affordable rentals. With the number of families with children also on the rise, demand for larger rental units will increase as well, particularly in communities with access to good schools and employment centers.”

These groups are under increasing pressure from several market conditions. The simultaneous increase in both demand and rental rates are making it increasingly difficult for them to find a unit that meets their criteria.

The current rental market is unprecedented, as rates are becoming less affordable for the majority of the country. For the first time ever, more than half of all renters are spending more than 30 percent of their income on rent.

In a 12 year period, between 2000 and 2012, real median rents increased by six percent on a national level. At the same time, the real median income of renters dropped by 13 percent. The Harvard study also acknowledges the private market’s inability to keep up with this population’s growth in demand.

“The shortfall in the number of units affordable to extremely low-income renters in the U.S. more than doubled from 1.9 million in 2001 to 4.9 million in 2011. The situation just keeps getting worse,” says Chris Herbert, Research Director at the Harvard Joint Center for Housing Studies. “For many low-income families, the rental housing affordability crisis is like a game of musical chairs in which there is never a chair left for them.”

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