One of the main factors contributing to the success of multi-family’s success in recent years has been the Millennials: in particular their desire to live close to where they work and socialize. Additionally their tendency to wait in regards to marriage and starting a family as well as a social consciousness has often involved sharing houses to be more socially responsible, which also allows them to pay higher rents.
But time moves on and millennials are growing up. Many are also just “aging out” of the rental market. For many, those delayed life milestones are upon them. There are others are waiting in the wings, but will they be enough to sustain the current level of multifamily supply and demand?
Pundits think that at least for 2020, multifamily properties will continue to be a strong performer. When considering a longer term demographic trend, however, the millennial generation is starting to age out of the key renter pool, as they get into their mid to late 30’s.
The “average” millennial is also getting married, having kids and buying a house, but later in life. There is going to be an economic impact to that. We still have record employment but wages have not kept pace. Another huge factor is the student debt burden. The amount of student debt has also more than doubled since the early 2000’s, so the millennials have a hard time saving and qualifying for their first home, even when they have good jobs.
Adding to all of this is the fact that the prices have gone up significantly. In Los Angeles it’s now over $600,000. And that’s just the median. The question is whether or not millennials have the ability to qualify for a loan and make the down payment needed to purchase the types of housing that they want at the prices that the market is bearing. Add to this the fact that the construction costs of multi-family and single family, including the costs of remodeling or adding on to homes, have risen significantly.
If they cannot afford to buy a home, they may continue to rent. But the problem there is whether they can afford the larger spaces that they will need. The larger units available tend to be more luxurious and much more costly. Some will decide to move out of the area, if not out of the State. It remains to be seen.