State of the Multifamily Market in the WestAug 17, 2020
For more information about the speaker, contact
Kenneth Perlman, John Burns Real Estate Consulting
5 Topics of this Video:
- Demographic Tailwinds and Opportunities
- The Economy in the West
- Things to Look Out For in the Economy
- Rental Fundamentals in the West
- Key Strategies to Success in Today's Market
Other Helpful Links:
Ken has more than 20 years of experience in the real estate industry. He has directed analyses of residential and commercial projects throughout the US, including master-planned communities, active adult housing, high-rise development, urban projects, and commercial and retail developments.
Prior to joining John Burns Real Estate Consulting in 2010, Ken was Vice President with a San Diego market research team and a Senior Analyst with a national housing market analysis firm. He began his career as a residential land broker with Grubb & Ellis.
Ken holds a B.A. in Urban Studies and Planning from the University of California, San Diego and an M.B.A. from the University of San Diego, and is based in our San Diego office. In his off-hours, Ken enjoys coaching his boys in youth sports.
Transcription of the Multifamily Market in the West
So, my agenda today is really five parts. And I'm going to talk about the demographic, what I'm calling the demographic tailwinds and opportunities, the economy, what's happening in the economy right now, because there are some really good things happening in the economy right now, overall, the economy's pretty good. So number one, and number two, pretty good shape, particularly for the multifamily market.
But there are some things we want to be cautious of. So I want to talk to you about that will talk to you about some of the rental market fundamentals in the West. Particularly, I'll apply some of those rental demographics to what's happening in the rental market. And then I'll give you a few key strategies for success.
Long-Term Tailwinds & Demographics
So I want to start by talking about what we're calling long term tailwinds the demographics. And Steve and his team really asked me to talk a little bit about this. And, in fact, as I mentioned, a couple of years ago, we put together John Burns and our chief demographer Chris Porter wrote a book called Big Shifts ahead demographic strategies for real estate. And we started to look at this and we talk about when I talk about long term tailwinds. This is really the crux of our discussion. The demographics for housing, including the apartment market, are really phenomenal. And we think that these strong demographics are really going to be the market over the next couple of years, even if we see an economic slowdown or housing market slowdown.
And I want to get something clear right upfront because you will hear me use through this presentation, I will use the word I'll use the word recession, something that we are we're looking at, and we're potentially preparing for.
But I want you to distance yourself from 2007 and 2009. And what we experienced because the magnitude of any kind of downturn is not even close to what you guys already experienced and what you guys were able to survive. So rest assured there, in part because those demographic tailwinds are so great. So let me start by talking about some of the demographics. One of the things that we've often struggled with is how the generations are defined. And as an example, we have this term millennial. And the term millennial really applies to depend upon who the group is that using it, this kind of 20 year age group between people born between 1982 and 2000.
If you can remember that, and depending upon who it is, and I don't know about you guys, but we always felt like that was just right, way too big of a period and way too much of a kind of undefined space. And the example that I like to give is that when you think about millennials, Mark Zuckerberg, the guy that founded Facebook, he's a millennial, john burns, his daughter, who is an 18-year-old college freshman at the University of Michigan, is also a millennial, two very, very different people in very, very different stages of life, and how they live, and how they apply housing are dramatically different.
So each one of these dark bars here represents the birth rate in a given year, and the colors separate the decades. And that lighter shaded portion that I just put up there is the foreign-born population. So as you look at this, and I'll highlight this in red, the light, for example, in 1972, 3 million people born in the US, and since that time, about a million more people born and this is for 1972, turning 47 this year, have immigrated into the United States. So that's how we're looking at the demographics.
And I think there's a couple of interesting things about this, which is, you'll notice that between natural-born population and in-migration, there are about 4244 million people in each of the 10 year decades, and each of the 10-year cohorts. Now the other thing that's interesting is, is if you look at these dark bars, this is US population natural-born population, you see a pop all the way up here till right there till 1961.
Anybody want to guess or know what happened in 1961, in the United States, Introduction to the birth control pill, that's when the population natural-born population in the United States, Pete, and there's some real demographic trends that go along with this. And the other thing that starts to happen is, is that you really start to see immigration filling in the gaps in the 19th. For the group born in the 1970s. In the 1980s.
And in the 1990s, there were some government regulations that opened up immigration into the United States made immigration into the United States a little bit easier. And when what you Do people know, what's the age that people typically like to come into a country or like to emigrate in their 20s? So those were people that were born in the 19, the 70s. So I want to go through each of these decades, really quickly, I think you'll find out that it's kind of fun. I could spend a day talking about every single one of these, but I think you'll see yourselves in some of these profiles.
Now what this is saying is, is that the dark is it is natural born population, the lighter is immigration. So these are people that are immigrating into the United States. So if you look at that total, that's the total population, say from 1972, you'll have 3 million natural-born population and about another million people that came into the United States. Great question.
So let me go through how we've defined each of these decades because we've changed that term millennial a little bit. And I want to walk you through it because it's kind of fun. And by the way, as I said, there's a whole book about this stuff, you could go on forever. And it's really fun to kind of see yourselves in some of these profiles. So the people that were born in the night 1930s, we call those people the Savers, so shaped by frugality, and childhood, they drove the shift from the cities to the suburbs, and they started the surge in divorces. Today, they're in their 80s and early 90s.
And the savers experienced a tremendous boom in the economy during their working lines, GDP growth, over the lifetime of the savers was 2.4%, which is higher than any other demographic group that's followed them that's really important in understanding who those people are. I don't know why they put Dolly Parton in there. Why not?
Right. So the people that were born in the 1940s are called the achievers. And they were driven to succeed financially. They're between the ages of 70 and 79. Today, and 19% of the achievers still work full time. Okay, so those are people that are retired 19% of them still work full time. That's more than double the saver's population that still works today. And they achieved great financial wealth due to a surge in low incomes, and lower expenses. They had fewer kids than previous generations because of the the the introduction of the birth control pill and they were able to control the size of their families. And when they had families. Unlike the Savers, the achievers were very comfortable with debt. And they invented credit cards to spend. Now the next group is a group that's really someone that you should be paying attention to. And we call those the innovators born in the 1950s highly competitive due to crowded classrooms.
Remember, they were the children of the savers. They were fascinated by the space race as kids, they were between the ages of 10 and 19. When Neil Armstrong landed on the moon, these guys are Workaholics. And they invented a lot of the new technologies and things we have today. When these guys entered the workforce in the 1970s, 16% of all businesses were startups today that's fallen to about 8%.
I got jello in there, too. So the one thing before we move on to Jayla, the one thing I want to make you aware of is that the God these guys are the next wave of retirement, that surgeon births from the 1950s to the early 1960s is really causing an explosion in retirees. That will continue over the next decade. I think as you're looking and we're going to talk about this in a few minutes at your multifamily portfolios.
This is a group that you should be paying attention to because I can tell you that the sales market is absolutely paying attention to. And we've got to remember that those people are different than the achievers that were born in the 1940s. Now the 1960s equalizers.
They were really the big shift from the nation's first African American president who came from this generation, empowered by title nine in 1972, more equal or women graduating from college than men. And a few fun facts. Men comprise 58% of college graduates before title nine and only 42%. Today, they doubled their workforce population between 1950 and 1999. She now earns more than he does 38% of the time. And it's rising point 4% per year. And 40 years ago, 68% of women in their late 20s had both a husband and a child. Today, that number is only 22%.
This has been a huge shift in society. And it's something that you need to pay attention to as you're starting to look at your product and your portfolios. Now the balancers. And we're almost to the end of this kind of group. But the balancers raised by more dual-income and divorced parents than ever before. Because remember, they were the children of the achievers. They embraced TV and video games and reacting against their often divorced parents, workaholic lifestyles, they divorced less, they stay at home with kids more, and they have children later than life. They were disproportionately hurt by the housing crash.
Now, this is the group that I really want you to start paying attention to because the people that were born in the 1980s, we call them the shares 44 million shares born in the 1980s. And they were young adults when the great recession hit. And as a result, they invented the sharing economy, really out of economic necessity. The new power of the internet, let them share locations, likes and all sorts of private information, to get discounts and help their friends save money.
They share with strangers, they share houses, they share cars, they share rides, and they cut expenses by eliminating the middleman wherever possible. Now the interesting thing is, this group is between the ages of 30 and 39. Today, historically, for the last 10 years, this has been your renter population, these guys are starting to shift. Now they're starting to shift into household formation mode.
They're starting to get married, they're starting to have children. And it's shaping the way these people are living in the types of housing that they're choosing. Now, what's really interesting are these people that we call the connectors, and this is a group that you really should be paying attention to big-time connected to each other and to the internet. 24 seven, many of them are still in school.
They grew up with the internet and little known privacy. And they were raised by parents because remember, they're the children of the 1960s equalizers. They continue the trend of having children out of wedlock. They're highly educated, they are underemployed, and they are very wary of credit. Now, what's interesting about this group is that we think that as the labor pool shrinks, there's going to be tremendous wage inflation for this group, more people between the ages of 20 and 64 are leaving the workforce, then coming into it just by the sheer numbers.
So the labor pools' historic growth has been about 1.5 million workers per year, that'll drop below 500,000. By 2022. Fewer people in the workforce means upward pressure on wages, we're already starting to see that today. wage increases have been about four to 5% year over year, which is really helping kind of narrow that gap with affordability in some of the more expensive apartment markets. The Global's those are really we're just starting to see how their trends emerge.
They value diversity, they will bear the burden of prior generations underfunded retirement obligations, and technology is certainly going to be a big part of their lifestyles. So what I wanted to show you where this is the breakout by decade born. And the game-changer that people aren't focusing on is that baby boomers over the next couple of years are going to start leading us, let's say it that way or moving into assisted living facilities, we think there will be about 13.3 million losses from the baby boomer population and a total of about 25.8 million household formations.
And that's how you get your 12 and a half million net with a lot of those coming from that connector population. Those are your renters. That's good news. So I wanted to introduce that because we started to talk about housing topics and the housing market, those people are going to come into play with some of the strategies that we're going to talk about.
The Economy as a Whole and in the West
So let's talk about a little bit about the economy and where we are because there's really pretty good news in the economy.
But there are some things that we're being careful of, and I want to give you a couple of watch items. So us payroll employment, pretty good 1.8% year over year, and it's been rising for about nine consecutive years. And we think for this stage of the economy 1.8% year over year, employment growth is pretty darn good.
Those numbers are down a little bit since their peak in 2015. But remember unemployment rates 3.8 3.9%, right. It's hard to keep growing the economy at the same rate when everybody's house still has a job. And I don't know about you guys, but I probably wouldn't hire the bottom 4% of my high school class. So just something to think about. So we do think that the economy is going to grow for about 1111 and a half consecutive years once everything seven done. So really through new 2019 and into 2020. And we are decelerating our job growth forecast out to 2021. When we do think it will turn negative. Now here's consumer confidence, this number is still elevated. This is the Consumer Confidence Index and anything above 100 is considered to be good. And that historic average there is a 94. So we're still well above the historic average.
Now what you can see is that in an up up until October, people were feeling pretty good about the economy. And we actually got to about 137 on the Consumer Confidence Index, we're starting to drop a little bit, we're now sitting at about 120. And there are some things Wall Street out sell-offs.
Turmoil in Washington, the most recent kind of impending government shutdown has made people's confidence in the economy waver a little bit, but still really good, particularly as it relates to the long term numbers again, just some cracks that we're starting to see and some things that we want to walk, talk about. So one of the things that you'll learn about john burns consulting, as you hear more about us, and as we provide you information, john burns love indices and metrics.
Okay, so I'm going to show you some indices that we put together, but each month, we put together what we call our burns economic performance index. And the index is really based on 34 different cat indicators grouped into five categories that influence housing and the rental market. And we rate current economic conditions against their previous cycles on a scale of zero to 100. And just to make things simple, red is bad. The Green is good.
So right now, our economic performance index is rating at about a 77, it was a 77, last month is 75, the month before to 72, the month before that. So the economy has remained pretty strong. One of the big reasons why is tax cuts.
Now here's our next index, which is if you look at the forecast side of things, all growth eventually stops. So we also built a tool called a risk of recession index, because again, we love indices, and it's based on those 34 different markets, and what our research team found out, and that's a bunch of guys that are sitting in a room that are a lot smarter than I am, that a recession is two years away 27% of the time, and it's four years away 56% of the time. So that's the norm.
You can see right now, our risk of a recession over the next two years is about 5050. And our risk of recession over the next four years is about two out of three. Okay, so we are bracing for a slowdown in the economy. And if you don't believe me, you can check in with some of the other economists This is a survey of national economists that were posted in the Wall Street Journal, about 67 of them are projecting a recession over the next year to two. So we think that's the most likely down scenario, again, when I say recession, and up until now we've been using this term, we've been using this term called hiccup or pause.
And I want you to keep that in mind as we relate that to a recession, because really again, and I'll say it again, distance yourself from the recession that we had in 2008, 2009 2000 into 2010. The biggest reason is that the demographics that I just showed you a really, really good housing inventory has been low, we haven't been overbuilding, lending practices have been good. We haven't been over lending and job growth has been solid. So the underpinnings are there, the biggest challenge we think in this market, particularly from the housing market perspective, is affordability. And if we see a rise in interest rates, that's going to impact affordability.
CEOs are telling us the same thing. This is what they're seeing in the economy. So these CEOs are looking at the economy and they're saying the expansion is almost 10 years long, looks like it's going to go another year, year and a half. And it's just starting to get I don't have any facts behind it. But it starts just starting to get long in the tooth. And that's the conversation that we're having with CEOs of home building companies reads you name it all over the country. Now, one thing that's important to remember is that this expansion that we've had this 10 years 11-year expansion has been very, very different by region.
And I think that's really important. So if you look at this, this graph shows job growth in access is that same markets pre-recession peak, so the green or what we're calling the new boomtowns and the way you read this is is that Austin, Texas has 34% more jobs today than it did during its prior peak, Salt Lake City. 19% more jobs today, Orlando and Charlotte. These are the places that have boomed and boomed early, but these are also some of the markets where we're seeing higher risk. If you look down at the bottom at some of these markets that are still recovering.
These are your Las Vegas's, your Phoenix's, your Sacramento's those are some of the markets where we think still have a little bit of run room as you're looking at capital allocation and allocating your portfolio's be thinking about where that expansion has been different. So this is played itself out perfectly.
In every past recession, the next two slides are going to show you have done that this is the unemployment rate. And when the unemployment rate gets low, you have to start giving good raises, you have to start giving raises to the people that work with you. And good raises cause inflation. And the Fed has decided that that inflation is a bad thing. And so when inflation happens, they start raising interest rates. And today, unemployment is 3.8 3.9%.
And what's happening, the Fed is raising interest rates to slow down the economy. Now, the good news is, is that the feds, the feds slow down interest rates going into the fourth quarter, which is the worst time of year, they could have been done it where it's a seasonally slow period of time.
So the seasonally slow period of time combined with affordability and rising interest rates really killed the fourth quarter interest rates dropped a little bit during the first part of January. And I will tell you that sales and traffic at least on the for sale side. And the first parts of January from the housing market perspective have been dramatically better. But you can see just how sensitive the market is to interest rates.
And I want to talk to you a little bit about the causes of recessions because there are some real distinct patterns here. So speculative investment, often fueled by debt has preceded 11 of the last 12 recessions. The 12th was the removal of the Golden entered in 1973. Now five of those 11 recessions were debt-related or were war-related. The government ran up huge debt to fund war efforts.
The war was over the kind of so then there are six over here. speculative bubbles that have preceded recessions and everybody thinks it's always real estate. Just because real estate was the freshest recession that we've had. It's not so one caused one was caused by money, people buying money to borrow stocks. And people today guess what is actually bought borrowing money at the same levels that they were prior to the 1929 recession to buy stocks. One was caused by excessive credit card debt.
And we've seen that as well. Consumer Debt today is at an all-time high. Now the good news is mortgage rate debt is not because lending has been pretty strict. Right? So but consumer debt is high, and others been caught it was caused by leveraged buyouts looking at the stock market, there have been a lot of companies that have been borrowing a lot of money to do so publicly-traded company debt has grown five times faster than GDP since 2009.
The biggest run-ups have been in the healthcare sector and the tech sector. And then, of course, there was the tech bubble in 2001. And just as you're looking at Tech, right now, revenue since 2009, and the tech sector is up about 28%. debt in that sector is up about 300%. So as we start to watch all of these things, those are the places where we're starting to say okay, we could see some potential slowdown in the economy. Now, how has it been on the housing market side? Well, since 2001, incomes have gone up by 23%, which is pretty good, but not good when home prices in mortgages are up by more than 50%, 56 and 58%. And by the way, that's a pattern that is mirroring itself in the apartment market as well. And I'm going to show you some of those numbers.
As we look at markets. A lot of we look at a lot of markets across the country, particularly from the for sale side. I will say this necessarily from the rental side. They're not oversupplied, there's not a lot of excess for-sale housing inventory in the market right now. And in fact, demand because of the demographics. And because of jobs, it's been pretty good. Its affordability.
We started the year with a 3.95% 30-year fixed mortgage rate. And by October, we were at 4.94%. That's almost 100 basis points over the course of a year that takes somebody's monthly payment and increases at 12%. On top of rising home prices, you want to talk a lot about a lack of affordability.
We put together again the love of our indices, we put together what's called a burns affordability index. And we look at housing affordability across the country. Zero is the most affordable time in the market's history. 10 is the least affordable time in market history. When you look at home prices when you look at interest rates when you look at incomes. Right now, our housing affordability index on a national level is about a set.
We're five Is this the historically normal is historically normal. And remember, part of the reason it's a seven is cut, things have been pretty cool. Over on the in the Midwest, and on the Northeast portion of the country. As you look here over to the west, the affordability indices, a couple of numbers here, Denver is currently a 9.7. Remember, 10 is the least affordable time in that market history. You guys 8.9 in Salt Lake City, you're not affordable here anymore.
Now pros a little bit better at 7.2. But again, when you start to look at affordability concerns, and potential slowdowns in the real estate market. That's something that we're looking at. So I know that you're all very well, very interested in the multifamily portfolio, and you're all very invested in this space. So I want to talk to you about what we're seeing in the multifamily space as well, and how some of this is applying to the rental market fundamentals. So between 2009 and 2015 multifamily permit issuance, the United States grew by 243%.
And we cap that off with an 18% bump between 2015 and 2016. We put a lot of multifamily supply into this market. Now a lot of those deliveries manifested themselves and starts in 15, and 16, and ultimately deliveries in 16, and 17. And this is the reason why inventory levels are up as much as they are today in the multifamily space. And of course, the concern here is is what happens to rent and occupancy levels. And I'm going to talk to you a little bit about this, we are expecting a little bit of a market slow down a little bit of a market softening for 2020 2021.
But even when you look here at our forecasts, we're still talking about 372 470,000 multifamily permits nationally, that's pretty consistent with what we've been doing over the last 10 or 20 years. So even that pullback, not too bad, not a reason to panic. But again, something to be looking at. These are, these are this is the CEO of apartment firms, they are reporting weakening marketing conditions as well. This is the market tightness index for apartments. And the CEOs are reporting that vacancy rates are rising and that rents are softening a little bit. So this is our forecast on a national basis. And I'll give it to you on each of the markets that we're talking about through 2021. And as we said, we expect to see fewer multifamily permits between 2018 and 2021.
As those historically high start impact, an occupancy also watches out for labor constraints and higher costs, material costs, making construction and operating costs more expensive. Now, the good news is, is that as the housing market has slowed down, we have started to see some signs that maybe some of those costs are coming down a little bit, not as much as we want them to not as much as we need them to, but potentially coming down a little bit fewer high wage jobs, decreasing the pool of renters who can afford expensive Class A rentals.
But again, the flip side of that is we do think that we are we're going to see because of the demographics I described, we do think we are going to start to see wage inflation. Historically, wage inflation in the United States has run at about one and a half to two and a half percent.
For the last four or five years, we've been running at about four to 5% year over year wage inflation, which is good. Apartment construction remains elevated in most of the markets compared to their historic norms. So this is current apartment supplies in excess of historic averages in many markets around the country.
I've got 29 markets up here and the 25 that are in red, or where there were current inventories exceed their historic averages. Up at the top here, you can do that squint test, that San Jose California where inventories are up 300% over their historic averages. So they've got a little bit of an inventory problem in that market as well. And combined with that, they're pushing rents about three times faster than incomes are growing. San Jose, something we want to be careful about occupancy rates are stabilizing, you can see that they were rising in 2012 and 2013. Today, they're stabilizing, but they're stabilizing. And some pretty good rates right now right la at 96 and a half percent, Salt Lake City at 95%, Denver 94%. So most of these markets are still hovering right around 94%.
And again, I'll make all of these slides available to you guys and all of the data behind it. So the news is okay here. But we do think that we're at this inflection point where we've really got to be looking at how much inventory we've got on the market, how quickly we can push rents, and then ultimately, what our renter profile looks like. Now, I want you all to memorize this chart because there will be a test afterward. But just do the squint test on this. And again, I'll play I'll give this to you. But if you look to the left, that is effective rent growth for these 29 markets year over year, and you'll notice it's all in black, which is good, that means it's positive. And in the middle job growth is up solid in most markets, too. Right? So the challenges is that when you look at occupancy rates here, those of all dropped in, in virtually every market now they really haven't dropped, they dropped in 24, the 29 markets now they really haven't dropped much more than about 1%.
But again, speaks to the softening of that market. Why is that happening just like we saw in the for-sale housing market rents for class, and particularly for class A properties are moving up much, much faster than incomes. This is effective rent growth between 2009 and for Q 2018. And that's in blue versus median incomes in orange, do you see any of the markets up there where the orange exceeds the blue because I don't strong income growth occurred in California, in San Jose rents over that period Rose 91%. incomes Rose 39%, slight differential there, Denver rents up 78% in those are effective rents with incomes up 30%, Salt Lake City, guys have been doing a little bit better.
But there's still a little bit of work to do. rents are up 47% over that period, while incomes have grown by 27%. So there's a sustainability issue that we have here. Now, one of the things that we've seen people doing and one of the things that we've seen some of the group reads and some of the investment groups doing is looking at the discrepancy between class eight properties and Class B and C properties.
This is just an average. There are always nuances. But what this shows you is the difference in average effective rent between a property and a B and C property in a few of the markets across the country. Okay, you can see that the difference here is about 20 to 30%. We are starting to see companies come in, buy those B and C properties, rehab them, raise those rents, and still create a more affordable rent opportunity, then you'll find in the class A markets now what I can tell you is when I did this slide a year ago, that gap that was 20 to 30%. Now was 30 to 40% a year ago.
So people have certainly got have certainly jumped onto that bandwagon. And that's a strategy that is certainly happening. This is the other slide that I'm going to ask you to memorize for the end of the presentation. But what this shows is the cost of owning a home in all of these markets versus renting. So yes, renting is expensive, and renting is expensive relative to incomes, but it's not as expensive as owning a home. So the markets that I've highlighted in red.
Those are markets where it is significantly more expensive to own a home than renting. And I'm talking about a 70% plus premium. Those are those markets that I showed you those green markets that were those new boomtowns, right, the Austin's the San Jose's the Denver's in Salt Lake City right now, it's 126% more expensive to own the entry-level to own an entry-level home than it is to rent the median price apartment. And again, there are nuances everywhere. This is a trend graphic, but I wanted to give you that perspective, the markets in orange, or where there's a little bit less of a gap. And when I say a little bit less of a gap, I'm looking at a market like Las Vegas where it's still $672 more a month to own a home entry-level home into rent an apartment really good news from the apartment perspective and supplying housing. So with all of that, where are we forecasting rents and rent growth, and this is our national forecast. After seven years of above-average rent growth, we anticipate some deceleration in 2019 and 2020, and we expect will go a little bit negative into 2021.
Now, remember, we've had a pretty good run-up overall. And think about this just for a second if you're too worried about that point 2% decline and remember these are effective rents. So this will take into account the influence of concessions, but I looked at an average now I looked at an average apartment in Provo 630 square foot one-bedroom apartment in Provo, currently running about $916 a month about a buck 45 a square foot, you apply our rent premium for 2019 or rent premium for 2020. And back out or rent premium for 2021. You're still sitting at a buck 50 a square foot and 20 21. Not too bad as it relates to the market slower. Yes, but not too bad. I want to skip through a couple of these because I know there's a lot here. I want to give you just this one really quick though to give you some perspective on what slower rent growth means.
If you look at the blue, in Phoenix for the quarter, you for quarter fourth quarter 2018 rent growth slowed, it slowed to 6.9% after 7.3% growth the year before rent growth in Salt Lake City, it's slowed to 4.7% from 5.1%, the year before. So yes, rent growth is slowing. But let's have a little bit of perspective on that. I'm going to skip through a couple of these actually, I wanted to go back to that one, I wanted to look at a couple of the markets individually, there's no surprise here. As we're forecasting on a national level, we're expecting the number of multifamily permits to come down, I'll make this available to all of you.
And you can see kind of the magnitude of the downturn that we're showing in each of the markets. And then the same thing as it relates to rents, we are showing much more muted rent appreciation. Here we're looking on a national basis at about one and a half to two and a half percent rent appreciation two and a half percent in Phoenix 1.8% in Salt Lake City. So that just gives you the order of the magnitude of the slowdown that we're talking about, certainly could be worse. cap rates, I think you guys are probably interested a little bit in cap rates.
So in the early 2000s investors that were flush with easy capital began acquiring properties, which really did drive the cap rates down. Today, there's really there's a high amount of invested capital and competition for the limited number of deals that are available. I'm sure all of you in this room know that and have experienced that.
Recently, cap rates for class B units have trended down faster than they have for class A units in large part because of exactly what I talked about that value-added strategy. And the rates that we've been listening to think that cap rates are going to stay low, even if interest rates rise because they still think there's enough capital trying to chase deals. And because the economy is relatively strong, it may weaken a little bit, but the economy is relatively strong. So they still think the cap rates are going to stay low, even if interest rates rise. Okay.
So I know I'm keeping you guys I know after me is lunch, right? So I'll keep I know, I'm keeping you guys for lunch. So what I'll try and do is I'll try and trim this down to two more hours before you guys get to lunch.
Renter demographics. So what I want to do is, before we wrap up, I want to apply some of what we're talking about from the renter demographic perspective, from the economic perspective, from the apartment market perspective to what we're seeing and give you guys a couple of strategies.
So here's that population by generation again, and where we see the growth, we should see 6% more renter demand from those connectors, those 1990s renters over the next 10 years and saw over the last 10 years, simply because that population is up about 6%. And that's before in migration.
And it's going to take 2% growth in the empty nesters and really 34% more people will turn 65 over the next 10 years, then turn 65 over the last so huge demographics there. And I would challenge each of you as you're looking at how you're doing apartments and the renter profiles that you're targeting. I will tell you that more and more I'm going to show you some numbers here in a minute that more and more we are seeing that empty nester moved down profile, look at the apartment market space
12 and a half million new households over the next 10 years we think 5.3 million of those will be homeowners 7.2 million more will be renters. That's good news for all of you in the room. But that rent profile is going to be different. We think that growth is going to happen. A lot of that's going to happen in the southeast Charlotte, Raleigh Atlanta, where the quality of life is good, but the cost of living is a little bit more reasonable than it is and says Calif. Korea, we do think we'll see big growth in Texas, Florida, and the Southwest. Now I'm excluding California from that I'm talking about Las Vegas, Denver and oh, yeah, Salt Lake City, because I will tell you that we're pretty bullish on Salt Lake City for the long term.
So remember, I talked to you about the connectors previously. So they're connected with each other 24 seven, many of them are still in school that grew up with the internet and little known privacy, and more were raised by single parents than ever before. Just kids, they're very wary of credit. They're highly educated, but just consider where a 30-year-old is today. This was someone who'd be basically someone who was born in 1989, 1990, and this data comes to us from the census in 1975. Okay, so 90% of 30-year-olds lived on their own. Okay, today, just 70% do. People are sharing homes, think about roommates situations, only 33% of them own a home compared to 56 percent in 1975. Clearly, this was a group that was impacted by the recession. And remember, a 30-year-old in 2015 was 22. And just getting out of school in 2007.
Younger renters and I'm going to have you look at we call this the barbell, right, both ends of the barbell, you've got the young renters and you've got the retiree renters. So this is a survey from the National multifamily housing Council on why people rent. Look at those the 34 and under are the darker bars at the top, the blue, and the orange, why do they rent, not enough savings for a down payment? That's well over 20% of renters' convenience and flexibility. 27% of people under the age of 25 said for convenience and flexibility. And what are the owner's renters looking for?
Those are those gray and those yellow bars, convenience and flexibility, and avoiding matrix maintenance. Okay, so that's why those people are renting. In 2005, about 58% of households between the ages of 25 and 2900. At homes, as of the three as a three to 2018. About 67% did. There's some evidence that in the last year renderer, ship rates peaked for young renters. And as a stronger economy, those rising wages, and that change and household lifestyle, move them back towards the for sale. But the lingering impacts of the recession, the high levels of debt, continue to present affordability challenges for those renters. And this is mentorship for older Americans. So this is mentorship for people between the ages of over the age of 45 people between the ages of 55 and 59, that climb from 19% ownership in 2004 to two over 27% ownership into that in 2017, 26 27%
ownership. So those people are renting in bigger numbers.
Strategies for Investing in Today's Real Estate Economy
Let's wrap it up, I want to give you a couple of strategies and things that you can do with this. Okay, so I've shown you a lot of data. I know I've done that over a very short period of time. And again, I'll say it again, I'll make all of this information available to you. I'll give you my email address, you can follow up with me and we can chat about anything here.
I just put this up here because these are some of the photos that we're seeing apartment developers use to kind of market this younger millennial renter. But here's the thing again, those people between the ages of 36 and 45. That population that is satisfied your renter demand over the last 10 years, those people are changing and they're moving into household formation. So what we're seeing is we're seeing the rise of affordably priced for-sale homes. So groups like starlight homes, which is an attainable division of Ashton woods, Dr. Hortons Express homes. Every year, we work on a national survey of about 23,000 new home shoppers across the country, and we segment them by the generations in which they were born.
And among the top purchasing motivators for those shares was people born in the 1980s is they need larger homes with better layouts to accommodate families. That's what we're here consistently. So as the shares move into family formation, we are clearly seeing the rise of the single-family build for rent space. And I think it's something that's important that all of you in this room, pay attention to, either out of necessity, I can't generate a down payment, but I want or I need that single-family home or out of choice, hey, I want to be in this school district and I can't necessarily afford to live here but I want to put my kids here.
Groups like Redwood communities, age v American homes for rent BB living, they're building new single-family detached homes for rent and groups like next Metro and Christopher Todd homes are building horizontal apartments. Now one of the things that I think is really interesting about this is that one challenge for the shares is that the unit makes for apartments that don't meet the demand for their families. This comes from Freddie Mac's survey of renters, and of those planning to rent their next home. 45% indicated that they prefer to move into a single-family detached or attached single-family rental home.
Why? Because only 11% of apartments are three bedrooms or more, where 65% of single-family rental units have three bedrooms or more. Okay, they have huge advantages. Our market surveys show that they strongly desire the privacy of outdoor spaces, and they really don't have anybody living above them or below them, which is highly desirable for families as well. And you can see here the percentage of new homes in the single-family for rent space by age group, up to 23%. for renters between the ages of 25 and 34, and almost 20% for 35 to 44. And the build to rent segment is really developing. It's not just one segment. Here's a couple of quick examples of the types of homes that we've been working on. Everything from that kind of 600 square foot horizontal apartment, up to 27 2800
square foot luxury single-family homes for rent. Okay. Now, I talked to you a little bit about this rising renderer shifts for older Americans and now multifamily older Americans are increasingly choosing to rent particularly those innovators born in the 1950s.
And the equal was born in the 1960s. Right, multifamily developers are designing apartments to target these renters primarily in what I'm calling certain areas. And I'm going to define that for you in a minute. Projects feature higher levels of amenities and larger unit sizes, then those products targeting younger renters. Look at this mentorship between the ages of 45 and 65, 20% in 2003, up to 27 28% today, and remember why they rent they rent because of convenience, and they rent to avoid maintenance.
Okay? Now, this also comes out of our book. And I would put this up against the iron cowboy anytime because I think this is really interesting. But we just talked about this concept of a servant. And so this is a term that we coined in big shifts ahead. And we believe that urban living that has really enjoyed a resurgence will continue to grow in popularity, but mostly in the suburbs. And we call this concept servant. It's a new supply of smaller homes, or luxury apartments in higher population areas to meet the demand to commute less, and live closer to services, such as restaurants and entertainment. And we use the word servant for these developments that bring the best of urban living to a more suburban environment. The empty-nester group is the group that is embracing this lifestyle in a big, big way. They want to be closer to things and by the way, they can afford it.
Okay, and I told you this earlier, remember GDP growth over the lifetime of the different generations, the savers 2.4% GDP growth over their lifetime 2.1% over the lifetime of the achievers 1.9% over the lifetime of the innovators, these people have more money than your younger renters. So just a few other kind of fun. In fact, I'm going to skip through this one in the sake of time, I wanted to talk to you a little bit about your younger renter profile and student debt because we've heard a lot about that.
Your younger shares and your connectors, they spent a lot of time in school. And obviously, a big part of that was due to our poor economy. And they took on a ton of student debt. So total student debt in the US rose from 260 billion in 2004 to 1.23 trillion in 2015. I think it's out to 1.33 trillion. So it's gonna be even more.
These are real burdens for the shares and the connectors that they're dealing with today. And their debt is a factor that is holding them back from buying homes or renting more expensive apartments. Now, here's a fun fact that I just read this is off of a website called credible. I mean, I sure I have to believe it because it came off of the internet. So I'm sure it's true. But there was this they did this recent survey of 1000 shares and connectors who had high levels of studio debt, and 50% of them reported that they would give up their right to vote in the next two presidential elections for relief in their student debt. Now that in and of itself is interesting, but it's not as interesting as the alternative, which was only 13% of them said that they would give up the option of texting for relief in their student debt.
That's true, it was on the internet. Okay, now, one or two more stats, and then I'll wrap this up. I had to check this with our chief demographer Chris Porter because I didn't believe it. But in 1960, only 5% of burst in the United States were to unmarried women.
Now 41% 2012 41% it doesn't necessarily mean that women don't have a partner or have significant other, but the average age that women have a first child today 26.1, the average age that they're getting married 27.8. What's important to these renters issue of safety and security are paramount. We're seeing that in more enclosed spaces. We're seeing that with security access, like key fobs lighted walkways.
There are some really interesting strategies that we're seeing appeal to those renters. Those connectors I talked to you about, they don't mind living with roommates, are more likely to live with a roommate than any generation before them later in life. This shows the percentage of 28-year-olds living with a roommate almost 10.5% of 28-year-olds, I recently worked on an apartment project where they could not fail, they were struggling to fill the one-bedroom units even though those bed one-bedroom units on an absolute rent basis, were less expensive. But they were having to keep up with the demand for the two-bedroom split units because they were seeing a huge proportion of roommate situations and two connectors come in and try and rent in the same apartment.
So I'm not saying this is the case everywhere. But I think when you look at the shares when moving out of the market when you look at the connectors, some of their demographic trends when you look at the move down renters, I think there are a lot of things that you need to look at to dig in a little bit more deeply. And I will wrap this up with just just a couple of quick things here. As I said, the demographics are great. And this is where we really get confident the connectors are growing at a 6% increase per year now versus 10 years ago, there are 34% more retirees than there were 10 years ago. The economy, as I said is solid but be cautious. Job growth is good.
The consumers generally feel good, but the cycle has been long. And the risk of slow down is rising primarily because of debt, both personal and corporate. And because of affordability. The rental market is strong, but it could be moderating. We're expecting fewer multifamily permits over the next three years. The housing in the as the housing market in the economy slows inventory levels was up, incomes are up and we expect them to rise four to 5% per year. But so far, they are not keeping pace with rent, we think that rent increases will be about 2% in most markets. Other factors to consider. As I said that builder rent space is real. Those builders are attracting the shares. They have stronger Runner Runner profiles, and they have a lot of competitive advantages. And then the last thing I just wanted to throw in here, one of the things that I am actually working on right now in Colorado is this concept of how sharing or co-living.
Think about all the seniors out there. There's a lot of seniors and empty nesters that have these big houses with empty bedrooms that they would love to rent out for 800 $900 a month. And think about the population of your connectors out there who would just assume live in a single-family home for 700 $800 a month, rather than rent an apartment for 1100 1200 1300 dollars a month, just something to be paying attention to.
Thank you very much for having me today.