Over the past few years, I feel as if I’m seeing a repeat of Sally Field’s infamous “You Like Me” speech at the Oscars many years ago. As an industry, we started clamoring that apartment living was becoming a “choice” for renters who actively decided to live in apartments rather than buying a home, and we have patted ourselves on the back that our multifamily industry is now on par with single family housing. Not only that, but we have strong data to back that up! Vacancies continue to fall across the country, and rents are rising at blistering speeds. It’s a good time to be in the apartment sector, isn’t it? But when considering the long term competitive advantage of the multifamily industry, is this all a mirage?
When we look at the recent spikes in rent and occupancy, can we put our finger on anything that we have done to make this happen? Yes, I think the industry is evolving and changes are being made, but let’s be real, the positive financial impact was not made because we had dramatically changed how we do business. Rather, the financial impact was almost completely independent of us, and we just happened to be in the right place at the right time. Although I feel for all those that were affected by the foreclosure crisis, it did send a lot of renters to our doors in search of something more flexible and less risky. Plus, the lending market dried up so that potential homebuyers could no longer get financing and new multifamily projects could not get off the ground. So we had a perfect storm of rising demand and static supply that greatly favored apartment living.
The question now is it sustainable? Yes, the trend may continue in the short term until supply catches up and the financing restrictions ease across the board, but longer term, has anything really changed? For all those residents who “chose” to live in an apartment, will they make that same choice after their rent has gone up $150 over two years? A report from the UCLA Ziman Center for Real Estate indicates that rising rents will push renters back into homeownership in approximately two years, and this quote from UCLA economist David Shulman is especially appropriate: “The American Dream of homeownership may be comatose, but it is not dead, and the wake-up call will come in the form of higher rents.”
I understand the need to capitalize on market conditions that take advantage of higher market rates, but looking at the situation from an industry-wide point of view, this shift is also doing its best to destroy the thought that buying is more risky than renting. And if that is true, then we are back to square one in our competition against single family housing.
I am not advocating that we artificially keep rents low to maintain this competitive advantage, but rather, I hope that we use this current surplus in profit to rethink how we as an industry operates. What are we bringing to the table to truly be a “choice” for renting versus homeownership? I am afraid that if we don’t capitalize on this opportunity, the inevitable market reversal will leave us scratching our heads as to what went wrong and how quickly we can offer 2 months free as a concession.