Ep. 117 The U.S. Needs 4.3M MORE Apartments by 2035!

If you go back and you look at the baby boomers in the 80s, they pushed housing prices up, they pushed inflation up. The same thing is happening now with millennials. The challenge is that millennials also have to compete against their parents. The baby boomers who are downsizing and in many markets are the fastest growing demographic of renters. Welcome to the Next Level Income show, where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larson. If you haven't yet, get a copy of our book for free at our website, nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. All right. On today's episode, we're going to be talking about some new research that just came out. I just got back from a little summer vacation. I got a tan. I got my favorite new hat on. And I got a little bit of scruff still from not shaving here for a week. And I was doing some light reading while on vacation. In my book, which is not what I was reading, in chapter seven, I talk about what I call the rising tide and multifamily fundamentals. And in my book, I cite some research from the National Housing Multifamily Council. And in that research, they talk about the housing discrepancy going through 2030. Well, they just updated that research to go through 2035. And in today's episode, we are going to talk about the research. Now first, where can you find this? I'm going to go ahead and share my screen for those of you that are watching on YouTube here. And the website is we are apartments.org forward/data. That's we are apartments.org forward slash data. And if you see here, you can look at the national, the state and the metro data, and we are going to highlight some of the data that they discuss there. Now, in my book, the big thing I talk about with multifamily, and one of the reasons I like it is because it has what I call this rising time. Okay? And what I mean is that we had and still have a housing shortage in this country. And this is economics 101. If you want lower prices, you want more supply, right? If you don't have enough supply, prices are going to go higher. If you go back and you look at the baby boomers in the 80s, they pushed housing prices up, they pushed inflation up. The same thing is happening now with Millennials. The challenge is that millennials also have to compete against their parents, the baby boomers who are downsizing and in many markets are the fastest growing demographic of renters. It's just, it's really challenging. So not only do we not have enough starter homes, but we also don't have enough apartments. And what's happening is as rates have gone up, as of right now, we're talking about going Into September of 2023, rates have gone up significantly this year to 3 percentage points for mortgage rates. That means that monthly payments have gone up because housing prices have also gone up. Housing prices in terms of your monthly mortgage payment, if you're buying a new home, have gone up 30% or more in some cases, whereas apartment rents have gone up 15% in most markets. We've seen as high as 20% or higher in some of our markets. But comparatively, apartments still seem fairly affordable. Now, what in my mind is causing this big push into this. It's household formation. So you have households being formed by millennials, you have baby boomers that are downside and they're renting. And both millennials and baby boomers and immigrants are moving to areas with robust job markets. And these are mostly states that have performed well coming out of COVID They're business friendly states. They have relatively low cost of living as well as options to make more money, and a lot of times also have better quality of life, including better weather. Those areas include largely the Southeast, where we focus. That includes the Carolinas, Georgia, Tennessee, Florida and Texas. And if you read through the data, what you're going to see is Florida, Texas and California account for 40% of the future demand. 1.5 million new apartments alone are needed in those three states. Okay, so what is the headline in my book? I talked about how we needed to build over 4 million apartments, about 4 1/2 million new apartments by 2030, when I wrote my book, and that was a few years ago, we still need to build 4.3 million new apartments by 2035. That means we have a deficit today of 600,000 apartment homes. And this is attributed to the underbuilding that occurred after 2008. We severely underbuilt. And what that means is to not only make up for that deficit, but also for the future shortfall, we need to build 266,000 units every single year. And this is making it challenging not only to keep up with demand, but it's also making it challenging from an affordability issue. So I think this benefits a couple areas of the market and We've seen this here recently. Number one, if you can't afford to buy a home, you're going to rent longer. Now, what type of apartment are you probably going to rent? You're probably going to rent an apartment that is more similar to a house or as similar to a house as possible. If you have a family, you're going to want to have an apartment in an area that has good schools, low crime. If you have a family, maybe you want to rent a townhouse. We've seen outperformance of build to rent communities. We own two build to rent communities in our portfolio. Specifically, these are more like townhomes. So they look a lot like a townhouse or they are really a townhouse, but they're rented. So that means you can rent a townhome for your family and it's a good school district and you can have a lot of benefits just like you would with a house. And a lot of times renters are waiting to save up a down payment and to get a mortgage or to find a house that suits them, their needs and their budget in that area. So you know, these, these class A properties as well as built to rent are benefiting because first time homebuyers are having to rent longer. Also what's happening is because you have a shortage of homes or shortage of apartments and homes, you don't have the typical kind of downward push on units into affordable housing. So what I mean is as new units are being produced and brought on the market, older units, whether they're 10 years old or 20 years old or 30 or 40 years old, they kind of fall down in price as they get pushed down from class A to class B to class C and they become more affordable. Now you don't have new units coming on board. What you have is you don't have as many affordable units going down. And what's happened is actually the reverse has happened. They've become less affordable because prices have gone up in those properties. So we've seen a real benefit to owning mobile home parks and that's another area that we focus on. Mobile home parks are one of, if not the most affordable area of housing, and I would even call it multifamily housing. And mobile home parks stay affordable. They also own, they also allow pride of ownership as well. So if you haven't yet, I highly suggest again you go to weareppartments.org day data, you can go through the data yourself, you can look at the state level data, you can look at the Metro data, you can even look at a little bit more of a microscopic data. And then again, if you have not yet, please get a free copy of my book@nextlevelincome.com that's nextlevelincome.com forward/book or just click on the book link, put your address in. I'll even send you a copy of the book. Turn right to page 67, chapter 7. You can read about all of the data that I talked about just a few years ago and how it's now updated and these trends are going to persist. And in closing, what I like to say is I don't like to bet on short term trends. I don't like to bet on, you know, what the market's going to do day to day or even what's going to do year to year. I like to bet on long term trends. We can time the tides. We know when the tides go in, we know when the tides go out. We're not always sure how big the waves are going to be in between. I was doing a little surfing last week, so this is on my mind as I looked out and I got not, not quite as big waves as I would have hoped to when I was out there. But I knew when the tide was coming in so I knew when to plan my time to go out into the ocean. And you can do the same thing with your investments. You can look at the big trends in the market, bet on the rising tides. That's going to make it a little bit easier so you're not going to have to swim upstream, so to speak. Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also please like share and take just 90 seconds to give us a rating on Apple Podcasts.