The Search for Yield Ends at Multi-housing

It’s not new that low interest rates globally have left investors, particularly institutional investors like insurance companies and pension plans, searching for higher yield. Increasingly more of these searches are ending at multifamily, where the returns are significantly greater than those of traditional bonds.

Take these trends for example:

• Demand for rental housing has grown every year since 2011
• Interest rates are at all-time lows, which increases yields
• Millennials are struggling to save enough to afford a down payment on a house

The Wall Street Journal published an article recently exploring this phenomenon of decreasing home ownership, especially among younger consumers. According to their research, 24% of renters say it is “extremely likely” that they will ever own a home. Home ownership has always been difficult, and while Millennials are strapped with more debt than previous generations making it more difficult, multihousing owners are investing in their tenants’ lifestyle to make renting more attractive. Over the past decade there has been an explosion of new multifamily housing developments across the country. At the same time, investors are renovating older assets and investing in experiential and lifestyle upgrades as well. Combined, these perks make it significantly less likely that renters will ever, or at least any time soon, shift direction.

This economic reality of consumers’ decline in purchase ability and the multihousing owners’ response to it, has created a trend that will see rents continue to rise for the foreseeable future where it is earned and occupancy hold resulting in an ideal investing environment for those seeking higher yields with low risk.