Demographic shifts to fuel alternative housing demand
Certain key demographic shifts occurring in the United States over the next decade will have profound implications for “alternative” housing sectors, including single-family rentals and self-storage. The aging of millennials into the key single-family rental cohort (ages 35-44) is a critical secular tailwind as this demographic is projected to grow 1.2% per annum during the next 10 years, compared to 0.5% per annum for the overall U.S. population. Furthermore, the suburban resurgence forecasted for this decade has accelerated as a result of the COVID-19 pandemic, fueling demand for single-family rentals and self-storage. Across the majority of metropolitan areas in 2020, net migration rates were stronger in suburban areas than urban areas. We expect this trend to continue over the medium term, benefitting single-family rentals and self-storage.
Throughout the last decade, millennials have been a major driver of conventional apartment demand. As millennials age, start families and work remotely more frequently in a post-COVID-19 environment, they are likely to outgrow their one and two bedroom apartments and demand more space. Yet, only 12% of apartment units in the U.S. have three or more bedrooms, compared to 65% for single-family homes, according to the U.S. Census Bureau. The limited share of three bedroom apartment units will likely cause millennials to move into single-family rentals that accommodate their evolving lifestyles.
Homeownership is presumably the next ordinary step for the majority of 35-44 year olds, but millennials have experienced two recessions in their young adult lives (the Great Recession and COVID-19) and are largely unable to afford a down payment and mortgage due to their high amounts of debt and relatively low credit scores. These headwinds will further position millennials to pursue single-family rental opportunities. Those in their thirties who have recently purchased a home, though, have overwhelmingly chosen single-family homes. According to the National Association of Realtors’ 2020 Home Buyers and Sellers Generational Trends Report, 88% of homes purchased by those aged 30-39 were single-family homes, solidifying this age cohort’s preference for living in single-family homes over apartment and condominium units.
The self-storage sector is a beneficiary of major life events, such as moving, marriage and family growth. According to the Self-Storage Almanac, the two primary reasons customers need self-storage units are (1) to store items for which they do not have room in their homes and (2) to temporarily store items while changing residences. Despite single-family homes’ offering more space than apartments and condominiums, single-family renters and owners generally demand more space, as 67% of self-storage users reside in a single-family home. The COVID-19 pandemic has prompted millions of people to re-evaluate their primary living situations and ultimately move to new locations. As a result, year-over-year self-storage rental growth for new tenants began to hit double digit rates in late 2020. Millennials currently comprise the largest segment of self-storage users and will continue to propel future self-storage demand.
Single-family rentals and self-storage properties have demonstrated their resiliency and ability to outperform throughout the COVID-19 pandemic. In our view, the demographic wave of millennials growing into their thirties and forties during the next 10 years will underpin future demand for these alternative housing sectors.