Market Trends

Make Room for 3.6 Million Families

By Erica Rascón on Nov 6, 2019 in News

Have you found it easier to move those three-bedroom units than before? For decades, larger units were tougher to rent. That narrative has changed in the recent years. New data projects the trend is likely to continue—and 3.6 million families may enter the rental market.

Single-family rentals have experienced an ascent in popularity. The demand has encouraged the construction of 3.6 million units in the past decade. Yardi Matrix, an apartment intelligence provider, reports that 52 percent of the apartments built between 2006 and 2016 have at least two bedrooms. Of those, 41 percent are 2-bedroom units, 9 percent have three bedrooms and 2 percent have at least 4 bedrooms.

Fewer families with young children can buy a home. As a result, families are making their mark on multifamily development by driving the demand for larger units and plenty of them.

The Backstory

The housing crisis was more than a decade ago, but the aftermath lingers. Greater restrictions on lending led to higher home prices and a grinding halt in new home construction. At the depth of the recession, home prices dropped–right along with job security–leaving fewer opportunities for families to confidently invest in a house.

With fewer entry-level homes to meet their needs, young couples and families turned their eyes towards renting. Families with young children who own a home dropped by 3.6 million from 2006-2016 (the most recent U.S. Census).

As the economy recovered, home prices surged disproportionately to salaries and rent rates. National real estate brokerage Redfin suggests that the median price of a single-family home increased by 35 percent in the past 5 years. That’s 75 percent faster than rent increases which rose by only 20 percent, reports Yardi Matrix.

For context, when adjusted for inflation, workers’ wages only grew 0.6 percent within the last year. That is the largest increase since 2016, according to the Labor Department.

It’s not surprising, then, that more families are renting. The most recent data reveals that 33 percent of all renter households are families with young children. Only 29 percent of families with children are homeowners.

Additional Factors for Families in Rentals

In addition to fewer entry level homes and tighter lending rules, there are several factors hindering family entry into homeownership. Student loans cripple many young adults, for example. Forbes reported a $1.5 trillion student loan debt “crisis” earlier this year.

Couples are also waiting longer to have children due to the pursuit of education, career goals, growing infertility rates and the rising cost of raising a child. The birthrate has declined for the fourth consecutive year, per the National Center for Health Statistics. The birthrate among women in their early 20s has decreased by an average of 4 percent each year since 2007. Last year, it declined by 5 percent.

As families develop more slowly, the demand on square footage slows also. Rentals of just a few bedrooms can accommodate couples and small families for longer durations of their lives.

How are Families Changing Multifamily Housing?

The combination of barriers to home ownership, fewer resources and smaller families has had its impact on multifamily housing. From 2006- 2016, the amount of families with children renting in the U.S. rose by 16 percent. Homeownership has decreased by 14 percent amongst the same group. The trend is surprisingly uniform throughout the nation’s top 30 metros, reports RentCafe.

The southeast absorbed most of the impact. The Charlotte, North Carolina metropolitan area experienced a 73 percent increase in families with young children joining the rental pool. The Atlanta metropolitan area witnessed a 51 percent spike in the quantity of families in rentals with an 11 percent decline in families that owned homes. Phoenix, Houston, and Miami are also among the highest-ranking cities in terms of families joining the rental market.

Families in rentals aren’t necessarily new, growing families. Some were previous homeowners. RentCafe reports that Detroit, Riverside, Miami, Las Vegas, and Los Angeles lost the most homeowner families with children, registering decreases of more than 20 percent.

Get the full story on the RentCafe blog.