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July 25, 2024
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High Barriers to Homeownership is Boosting Demand for High-End Apartments


This report provided by Institutional Property Advisors (IPA)

Institutional Property Advisors (IPA), a division of Marcus & Millichap, has released its Class A Multifamily Outlook Midyear 2023 special report. The firm shared a summary of that report with us.

“Today’s high barriers to homeownership are helping support demand for high-end apartments, particularly among the millennial demographic,” noted John Sebree, senior vice president and national director of IPA’s multi housing division.

Below are highlights from IPA’s Class A Multifamily Outlook:

• Demand for high-end apartment rentals is outperforming other segments in recent quarters, despite the added competition presented by historic amounts of new supply being delivered.

• Class A apartment rent growth has cooled down after historic gains during 2021 and 2022, while home prices and mortgage rates have continued to increase. These divergent trends have made high-end apartments more affordable relative to homeownership.

• Millennial homeownership is trending well-below previous generations, and surveys indicate that an increasing share of young adult renters are giving up on the pursuit of home buying altogether. Saving for a down payment is a key challenge, one that is set to become more difficult once student loan payments resume in fall.

• High-density coastal markets have been among the strongest performers for Class A apartments recently. Many of these locations have an outsized population share of 25-to-44-year-olds and extreme homeownership barriers, which is directing higher-income households to luxury rentals.

• Investment activity for higher-end apartments has remained soft in recent quarters as many institutional groups stayed on the sidelines amid rapidly rising interest rates. Financial markets stability should prompt greater trading velocity in the coming quarters, however.

“These factors are supporting Class A apartment performance even amid a sizable construction pipeline,” added Sebree.

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