issues the US faces, but it appears to have spurred the first
serious efforts at immigration policy reform since the 1980s.
Immigrants are far more likely to rent than own within the
first decade of arrival into the US, so any increase in immigration, if the reform legislation encourages it, would be
positive for apartment demand.
provide the incentive and infrastructure for these
environments to succeed. Disproportionately, these
neighborhoods are located in the nation’s innovation
clusters—large cities, such as Chicago, Boston, and
(believe it or not) Los Angeles; medium-sized cities,
such as Austin and Portland; and scores of university towns across the country. Multifamily properties in these WalkUP neighborhoods will continue
to benefit from planning policies and infrastructure
investments that provide better transportation options, more cultural and entertainment amenities,
and more immediate proximity to the most innovative employers.
Industries in these innovation clusters are expanding
now, and our view is that these also are the metropolitan areas with the best prospects for growth over the
long term. The human capital these industries need
is not evenly distributed across the US, but instead is
highly concentrated in cities with prestigious higher
education institutions, good infrastructure and public-private partnerships, and high quality of life. As a result
of these human capital agglomerations, these industries
are likely to become even more concentrated in these
innovation clusters over time, creating more demand
for both rental and owner-occupied housing.
And speaking of owner-occupied housing …
An outsized amount of future US economic growth is likely
to occur in the nation’s “innovation clusters,” which depend on
a steady supply of highly educated, younger workers—all of
whom need somewhere to live and, increasingly, work.
While the US economy currently is growing at a less-than-impressive rate overall, this average masks significantly stronger expansions of sectors such as technology,
energy, and, more generally, business services. The commonality of all these industries is that they require highly
educated and well-trained employees. These employers
and employees are particularly concentrated in the nation’s
largest cities, which generally have both the higher housing
costs (which make homeownership relatively less affordable) and robust urban cores that make apartment living
desirable. Anyone who is struggling to understand how
US apartment rents rose during the very difficult economic
period of the past few years need only visit San Francisco’s
SoMa, Chicago’s South Loop, or Cambridge, Massachusetts, to see how strong industries have supported rising
demand for upscale apartments.
It is important to keep in mind that many renters in these
cities work remotely at least some of the time, especially
those who are self-employed. Often, working from “home”
doesn’t mean staying in pajamas all day, but rather spending at least some time in spacious, attractively appointed
common areas with good Wi-Fi connections, printers and
scanners, and comfortable seating. Putting capital into these
areas can pay off in terms of tenant attraction and retention.
Also, a hint to apartment owners who want to differentiate
themselves among the work-via-Internet crowd: offer good,
free coffee in these common areas.
Perhaps the biggest change in urban planning over the
past few decades is the emphasis on what George Washington University professor Christopher Leinberger has termed
“walkable urban places,” aka “WalkUPs.” The convergence
has been swift between the preference for denser
environments in which people (particularly millennials) want to live and the planning policies that
The conventional wisdom about weak owner-occupied home markets being good for apartments is, to be
blunt, wrong. Rising home prices will support higher
apartment rents in the future.
A casual observer of the bifurcation between improving apartment rents and occupancies and the
(until recently) moribund for-sale housing market
might conclude that the best thing for apartments
is a lousy single-family market. The short-term evidence supports that observation: house prices have
only recently started to recover, while apartment
rents have been rising for years.
However, that reasoning ignores long-term evidence that proves rental and for-sale housing markets have a strongly symbiotic relationship. Household formations fuel demand for both rental and
owner-occupied housing, and the highest apartment
rents are almost always in the same areas where for-
are far more
likely to rent
than own within
the first decade
of arrival into
the US, so any