DALLAS – The Residential Sector Spotlight Session at this year’s NAREIT convention subtitle could have been “busting assumptions and myths.” During the hour-long session on Nov. 16, heads of multifamily REITs provided an entertaining and sometimes humorous discussion about trends, predictions and why the multifamily sector was doing so well despite lousy job growth.
The general consensus of the panel, moderated by Richard Anderson, managing director, IBG Research, BMO Capital Markets, was that, job growth or no job growth, people need to livesomewhere. And given the skepticism of the American Dream of home ownership, apartments seem to be it.
However, cautioned Equity Residential’s president and CEO David Neithercut, don’t make the mistake of assuming that people are moving out of foreclosed homes into apartments. Those foreclosed folks are moving into rental housing, rather than multihousing.
Furthermore, explained Michael Schall, president and CEO of Essex Property Trust Inc., most apartment builders and owners WANT to see single-family homes being built again, rather than the opposite. Why? “Construction means more jobs,” he explained.
What followed was a debate as to pricing; in other words, whether continued falling prices among single-family homes would mean more people flocking to them. The panel agreed that many homes aren’t selling because they were built in the wrong place, or are of lower quality.
Neithercut and Richard Campo, Camden Property Trust’s chairman and CEO, also pointed out that pricing had little to do with housing. “People are leasing our properties because of transportation issues and lifestyle choice,” Campo explained. “Housing decisions are an issues of independence, rather than an issue of price. Not everyone wants to own a home.”
Complicating the single-family issue further, the panelists said, is that individuals who do want a home are having trouble getting loans. Campo related an anecdotal story about a young couple that was interested in buying a $400,000 home. The man and woman had steady well-paying jobs and were prepared to put a $250,000 down payment on the property. But the couple was denied the $150,000 loan. “The woman never had a credit card, and didn’t have a FICO score,” Camden commented, somewhat wryly. “Because of that, the couple was denied.” The couple did get its home eventually, Campo continued, but not without jumping through a lot of hoops.
The panel pointed out that housing is becoming even more of a lifestyle choice as the Generation Y/Millennial demographic group comes of age and moves away from home. More of these young adults are waiting longer to get married and have families, meaning their housing demands are changing.Thomas Toomey, president and CEO of UDR Inc., provided anecdotal evidence with his own Millennial children. “My kids told me ‘why do I want to put capital in a home? I want to travel, be close to amenities,’” he said. “This is the age group that is renting the apartments.” As a result of this trend, “we have a nice decade ahead of us.”
In response to a question about older individuals and empty nesters, the panelists agreed that this other end of the age spectrum should also keep multifamily assets in high demand. Neithercut pointed out that 15% of renters in the Equity portfolio are over the age of 50, while Toomey noted that older people will likely sell their homes to tap into their equity.