The real estate investing market faces a surging demand for apartments as home sales drops. The apartment absorption —the rate at which new units are rented out— has grown exponentially and reached a 20-year high in 2017. According to an article published by the National Apartment Association, approximately 4.6 million new apartments are needed to suffice the growing demand of the US population or else it will face a severe shortage.
The Increasing Demand for Apartments
Despite warnings that the demand for apartment rentals will slow down in the years to come, statistics show otherwise:
- Today, the young adult population aged 18 to 34 comprises the majority of the generational demographic group. This aging population is choosing the convenience of apartment living over homeownership —thus causing the delay in home buying.
- Add to this population the immigration population, which is perceived to account to half of the US population growth by 2030. Buying a home in the US if you’re not a US citizen can be a complicated process. As such, many immigrants choose to rent apartments. This is also a convenient option if ever they opt to move to another state.
- Reports show that nearly 39 million people in the US prefer to rent an apartment and call it their home. This demand puts significant pressure on the rental housing industry.
To address this issue, real estate investors association faces both an opportunity and a challenge to meet the surging demand for apartment rentals.
Meeting projected demand means building more than 325,000 new apartment rentals every year on the average. The problem, however, is that the real estate investing community has not hit this number for decades. The aim is to build affordable rentals, but how can this be possible?
Investing in smaller apartment units presents an opportunity for real estate investors to meet the growing demand for rentals while catering to the income level of every individual. Reports show that smaller apartments are outperforming housing spaces and units with more square footage.
- Smaller apartment units have lower vacancy rates compared to bigger apartment spaces. This is because one-bedroom units are typically cheaper than larger units.
- More and more renters are realizing that bigger is not always better as they only spend a little time at home. Most Millenials are always on-the-go. This means that they spend the majority of their time outside the apartment. As such, they will only need smaller spaces to stay in.
- Building smaller apartment units are also less costly than larger ones.
- Millenials are choosing to get married later in life. This is why the need for bigger spaces becomes less priority compared to earlier generations.
Focusing on building smaller apartment rentals provides an opportunity for investors to meet the increasing demand and maximize the income stream on their properties.
For these reasons, it is only safe to say that real estate investors associations can see profitable investments in apartment rentals in the years to come. The key is to study the market and make sure to stay up-to-date with the latest real estate education. Doing so will provide you with the proper knowledge on the market volatility and opportunities you can take advantage of.