Monday, December 21, 2020

Affordability is Key with Renters

How job loss and wage stagnation are creating demand for multifamily housing

Guest Contribution Submitted by Rastegar

Even before the pandemic, wages were a hot topic for many Americans. With cost of living, particularly in America’s largest cities, skyrocketing there were already increasing concerns about the amount of affordable places to live based on wage rates across the country. Many were struggling to make ends meet even before COVID shut down entire industries, as those working full time earning minimum wage couldn’t afford a one bedroom apartment anywhere in the U.S. Now, with the significant unemployment caused by the pandemic, there’s a large need for affordable rental properties nationwide, but especially in the Sun Belt, where renters are flocking.

While the unemployment rate has shrunk from its high of 14.7% to just under 8% in September, this drop doesn’t mean the economy is in the clear. Extra unemployment funds expired in July and many millions of Americans were still left jobless and struggling to pay their bills, rent and for necessities. Due to a combination of job loss and a gap in stimulus aid for working Americans, people across the country are tightening their belts and re-examining expenses.

One of the first budget items people will be looking to cut will be rent. With a large shift to remote work, as well as job loss, those in the largest cities in America will be looking to move to areas like the Sun Belt to stretch their rent budget now that they are no longer tied to a city. Additionally, high unemployment among millennials and general economic uncertainty is resulting in many deciding to stay in the rental market rather than purchase a home, and in some cases forcing them to dip into savings making it even more unlikely they’ll buy a home in the near future.

But this budgeting re-think isn’t just limited to those in cities or millennials, in fact, many getting ready for retirement have been hard hit by the economic impact of the pandemic. As a result of the uncertainty for their retirement funds, many in the older generation are looking to downsize and are exploring rental opportunities in smaller cities across the Sun Belt.

For investors, this will translate into a win for affordable apartments in metros like Austin and Phoenix. Larger apartment complexes, like those commonly found in big cities like New York, are typically more expensive and will likely be less appealing to renters. With the pandemic forcing complexes to close hot ticket amenities, many renters will be looking to trade them in for more living space, and access to the outdoors. Particularly renters coming from large metros, apartments with green space and open-air areas will be in high demand after long months stuck inside.

Investors will want to keep a close eye on the market as demand continues to increase for affordable apartments across the Sun Belt. Many large apartment complexes may struggle during this interim recovery period, so investors in those properties will need to be patient about seeing their return. With so many areas of real estate struggling now, multifamily is one of the few that’s thriving during the pandemic and demand for these units will only increase as the economic effects of the pandemic continue to strain American workers. Despite the ill effects of the pandemic there are still opportunities for silver lining investments if you monitor the market and pay attention to the demands of prospective renters.

Rastegar is an Associate member of TEXPERS. The views expressed in this article are those of the authors and not necessarily Rastegar nor TEXPERS.

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