Rental demand is expected to skyrocket in the coming years, but are some analysts misjudging what is really a fad?

Another day, another hugely optimistic analysis for rental demand in the U.S. real estate market.

FirstService Residential Realty, the nation’s largest residential single-family property management company according to HousingWire, is the latest to throw its hat in the ring, predicting that rental demand will increase by nearly 6.6 million units through 2016, with 4.2 million new renters contributing to that total.

Rental Demand – A Product of Market Forces

As HousingWire recently noted in a story on rental demand, a number of factors have led to today’s multifamily zeal:

• First, the vast majority of new construction has been for multifamily units, given the over-supply of single-family units during the housing boom years.
• Secondly, the quality of the single-family housing inventory has also influenced rental demand. Shadow inventory, said Jim Warren, FirstService’s chief marketing officer, remains high, and with so many homes still stuck in the pipeline, rental properties have been a stable alternative.
• And of course, there’s the common argument that with underwriting standards still tight, that consumers have opted to rent, rather than go through the supposedly laborious homebuying process.
• But as Barclays has noted, the homeownership rate has fallen in the post-boom market from 69 percent to 65 percent, and when adjusted for shadow inventory, it’s down to 61 percent.

Are We Entering A New Era for Housing?

All that data lead to what has become a common question in housing circles – is the current rental spike a new era for housing, or a temporary movement brought on by the worst housing crisis since the Great Depression?

For Warren, it’s the former, a readjustment to how burgeoning professionals interpret housing in America.

“Homes used to be your retirement savings plan and our father’s, our parents, they all pushed us and said ‘you’ve to own your own home, pay for it and get it paid for before you retire,'” Warren said. “I think everyone’s seen their parents take a massive hit in that asset and I think culturally, our generation looks at that and goes ‘that’s not my retirement plan anymore.'”

But at the same time, there are not only studies that suggest the apartment boom may be waning, but surveys that suggest that American’s appetite for home ownership is still as strong as ever.

John Michael Grafft, the director of leasing services at Prudential Rubloff, said that the success of Chicago’s rental market will be strongly dependent on the city’s job market.

“The typical renter is someone of any age relocating for new employment. They are not ready to purchase something,” Grafft explained. “Most purchasers have been in the community for a couple years and are in the process of deciding which is the right neighborhood for them.

“As long as Chicago stays competitive in the job market and continues to attract talent from around the world, the rental market will remain strong. The real question is if rental demand will justify the high prices demanded by the Class A apartment buildings being built, or will it push interest to nice, but older buildings in the area.”