Will Supply Growth Outpace Tenant Demand?
(First in a Series of 3 Articles)
2020 Census as a Decision Driver for Landlords
In several past first-of-the-New-Year issues of the KRS newsletter, 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, this year I’m setting my crystal ball to one side in anticipation of the results of the once-every-decade U.S. Census scheduled this year. 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.
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
We’ll cover all three in this series of articles. This month, we’ll concentrate on …
Household Formation: The Joint Center for Housing Studies (JCHS) last released its projections for household growth in 2016, calling for a robust increase of 13.6 million households over the decade from 2015 to 2025 and 11.0 million over 2025-2035.
A notable trend is renter household formation increased by 43.5 percent since 2000.
Interestingly, Pew Research offers additional clarification by noting households are increasing in size mathematically because the growth in the number of households is trailing population growth. The newly released data indicates that the population residing in households has grown 6% since 2010 (the smallest population growth since the 1930s), while the number of households has grown at a slower rate (4%, from 116.7 million in 2010 to 121.5 million in 2018).
The uptick in average household size as reflected in the 2010 Census was largely due to two economic and social developments.
- More Americans lived in multi-generational households … about 20 percent mid-decade up from 12 percent back in 1980.
- The Great Recession took its financial toll on many Americans resulting in grown children returning home to live as well as accommodating a roommate or boarder in the household.
The increase in household size is significant because it could have implications for national economic growth. Rising household size reduces the demand for housing, resulting in less residential construction. In general, it leads to a less vigorous housing sector … fewer apartment leases and home purchases.
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.
Current Developments in Central Virginia
According to Real Data, development activity has been on the rise in 2019 after a slight contraction in 2018.
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.
There are currently almost 2,000 units under construction throughout the area, with another 1,500 units proposed. The Virginia Beach-West submarket is the most active with more than 750 units currently under construction.
Rent growth remains healthy, with the average rental rate now at $1,106 per month. One-bedroom units rent for $1,017, two-bedroom units rent for $1,110 and three-bedroom units rent for $1,293 per month. In the next year, the average vacancy rate is expected to remain close to 4.0% and rents will continue to grow at a healthy pace.
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 vacancy rates.