Property Management Blog

RESIDENTIAL REAL ESTATE RENTALS … SUPPLY & DEMAND: Will Supply Growth Outpace Tenant Demand?

KRS Holdings - Wednesday, February 26, 2020

2020 Census as a Decision Driver for Landlords


As I mentioned in the January edition of our Monthly Newsletter, in several past first-of-the-New-Year issues, I’ve gazed into my crystal ball to offer my forecast of the upcoming twelve months as it may affect residential rental real estate investors. Be sure to click here for a recap.



However, in the first Quarter of this year I’ve set my crystal ball to one side in anticipation of the results of the once-every-decade U.S. Census scheduled in 2020. Why? The results will influence both supply and demand for rentals by both landlords and tenants respectively. That’s not a subject for speculation, just one of reflection once all the data is in.


There are several consequences of the census that will determine representation in Congress, where new businesses (including residential rentals) can build, how crowded local schools will be over the next ten years plus money available for such things as road repairs and other community enhancement projects. All of which will be critical considerations in determining supply and demand for residential rentals, both single and multi-family. Supply and demand … real or anticipated … will guide acquisition and retention of rental units by residential landlords. 


Census Facts to Track

Here are the key census facts for residential real estate investors to remain alert. Year-over-year trends are the details to watch.


  • Household Formation
  • Vacancy Rates
  • Population Shifts

This month, in the second of three articles, we’ll concentrate on …


Vacancy Rates

The U.S. Census Bureau tracks Housing Vacancies and Homeownership to determine current information on rental and homeowner vacancy rates. Importantly, the rental vacancy rate is a key element of the index of leading economic indicators used by the Federal Government and economic forecasters to gauge the current economic climate.

Likewise, residential rental investors benefit from these statistics in considering the potential for landlords’ activities in specific areas.

Rental vacancy rates are published for the U.S., regions, states and for the 75 largest Metropolitan Statistical Areas (MSAs). Estimates of the percent distribution of vacant for-rent units are included. Data for all geographical sectors are updated both quarterly and annually.

Here’s a recap of the most recent quarterly residential vacancies and homeownership. For purposes of this article, the National Rental Vacancy Rate is significant.


Notably, the Commonwealth of Virginia rental vacancy rates mirror that of the above … about 6.4%.


While the Virginia state statistics are of interest to residential landlords, data on specific markets perceived as attractive investment locales is of more value in evaluating where to purchase a new residential rental property or to retain an existing one.


For example, in stark contrast to the rental vacancy rates for the state, the average vacancy rate for apartments in Norfolk-Virginia Beach/Newport News is now 4.2%. Chesapeake reported the lowest average vacancy rate at just 2.7 percent, while the Hampton-East submarket reported the highest average vacancy rate at 6.2 percent.


So, these “micro” looks are superior to statistics that cover an extended geography.


Click here to examine rental vacancy rates for specific geographical areas including Central Virginia locales.


Millennials as Influencers on Rental Vacancy Rates

Much has been written about Millennials … now the most numerically largest generation in the workforce. For purposes of this discussion, this younger group may differ from their parents when it comes to renting vs. buying a residence. If that proves to be the case, there may be significant impact on what the upcoming census reveals as it influences rental vacancy rates.


Millennials small share of housing market shrinking further: A report by the Federal Reserve drives this point home. In 1990, Boomers’ median age was 35 and owned about one-third of residential real estate value. Fast forward to 2019 and we see the Millennial generation, median age 31, owning just 4 percent … down from 7.5 percent just 3 years prior! A major factor is median student loan debt more than tripled from $5,600 to $18,500 from 1989 to 2016.


This downward trend in home ownership may continue to restrict home purchases by Millennials with a corresponding demand for residential rentals.


Renting can be better than buying a home: Many experts caution against buying a home. An enlightening exercise for Millennials or other potential home buyers is to run some quick calculations with an online rent-or-buy calculator. Two resources that will help are SmartAsset.com and Zillow.com. Just enter your location, rent, target home price, size of down payment and a few other factors for speedy answers.


Summary

Reality Check: Remember so far, we’ve been looking in the rear-view mirror at 2010 Census trends. What’s important is to compare 2020 Census data as it becomes available.


Lots going on in the Richmond /Tidewater/Northern Virginia residential rental markets … most of it positive and upbeat. So, residential real estate investors … veterans and wannabes … will find opportunities in 2020. That said, this being a year-of-the-Census, we all need to be cognizant of trends as they develop.

Keep a lookout for our next issue … a discussion of population shifts