Apartment Investing trends 2021 with the National Multifamily Housing Council #ddre29

The National Multifamily Housing Council (NMHC) is a membership organization that represents large apartment owners nationwide. NMHC is actively involved in forming national housing policy and shaping the legislation and regulations that affect the industry as well as research offering insights into apartment trends. This week we welcome Director of Research, Chris Bruen, and research associate, Claire Gray, as we discuss trends apartment owners are watching carefully as we head into a new administration and a new year. 

00:00​ The Data Driven Real Estate Podcast Welcomes Chris Bruen and Claire Gray from the National Multifamily Housing Council

‍00:56​ What is the number one data trend apartment owners should watch for in 2021?

‍01:50​ Who is the National Multifamily Housing Council?

‍04:13​ How do you define an apartment?

‍08:16​ What reports does the NMHC produce? 

‍11:40​ What are the insights they are seeing in different markets

‍12:58​ What percentage of apartment rents are being paid in 2021?

‍14:11​ How do apartment owners feel about 2021?

‍19:47​ Will apartment construction increase in 2021?

‍23:45​ Demographic and tenant trends in the apartment space

‍35:43​ Conversion of malls to apartments?

‍38:39​ Is migration impacting the apartment sector?

‍52:19​ What research is NMHC producing in 2021

‍55:56​ Technology trends in the apartment space

Transcript

Aaron Norris: 0:06

Welcome back to the Data Driven Real Estate Podcast, the podcast for real estate professionals dedicated to driving business using data. I'm Aaron Norris with PropertyRadar and this is episode 29. This week we have half the research team at the National Multifamily Housing Council. We've got the Director of Research, Chris Bruen, and Research Associate Claire Gray. This week, we talked about trends in the apartment space nationwide. We talked about migration, COVID challenges and some opportunities coming up in 2021. And the data that they are following in the year ahead, you won't want to miss this week. Chris and Claire, really nice to have you on the show today. Thanks for your time. I know Chris, you're in DC. It's an interesting time in the DC area. So, and you're in the office today. So good for you.

Christopher Bruen: 0:49

Yeah.

Aaron Norris: 0:50

Claire, where are you parked today?

Claire Gray: 0:52

I'm calling in from Arlington, Virginia. So, just over the river.

Aaron Norris: 0:56

Just over the river. All right. Well, I wanted to start the show off by asking what's the number one data point you're watching headed into 2021? And, Chris, I'll start with you.

Christopher Bruen: 1:07

The number one data point? I would say that we're always looking at rank collections that we're tracking every month. Well, I guess you asked for one. So, that would be my one.

Aaron Norris: 1:24

We'll go into more, we'll go into more. But I like that Claire, do you have one that you really got your eye on?

Claire Gray: 1:29

I was just gonna say kind of building off of Chris, like we've been tracking rent collections. But we're finding out that, you know, occupancy, vacancy, that end of it is also pretty important, because things are happening differently in different markets, you know, urban gateway markets are not in the same situation is the Midwest. So, just both ends of the picture there.

Aaron Norris: 1:50

Oh, that sets us up so beautifully for such a fun conversation. So, if somebody is not familiar with the National Multihousing Council, how would you describe it?

Christopher Bruen: 2:01

I would say so, we are an organization that represents the US apartment industry. And our members include some of the largest owners, managers and developers of apartments, as well as other industry players like, like brokers. Those in finance or technology related to the apartment industry. And our work is, is part advocacy. We have a government affairs team here, as well as providing research and insight for the industry. And, and Claire and I are part of a four person, research team here.

Aaron Norris: 2:49

Very cool. Yeah, the advocacy piece is just so important. And I've been on the hill in the single-family rental space sort of advocating on that. And data always seems to do a really good job keeping things out of the political sometimes. It's just a really important role. So, when it comes to data, what kind of information do you find the most helpful in that process?

Christopher Bruen: 3:18

In terms of what what, what data, do we think is much important or?

Aaron Norris: 3:22

If you're going to the hill do? or is Congress asking for specific insights? Are there any kind of when you're any testimonials, that testimonies that you're doing at the hill? What are they looking for? What kind of data are they needing to make great decisions for housing?

Christopher Bruen: 3:41

Hmm. I know it changes so it could be. I mean, and some of this is, is kind of in the domain of our government, government affairs team.

Aaron Norris: 3:54

Oh, got it. Got it. Got it.

Christopher Bruen: 3:55

But it really I mean, just whatever their objective is, it's important that they have an accurate picture of, of the market. So, just, just that we're there to provide them with, you know, accurate data.

Aaron Norris: 4:13

And that they trust the data that you're providing them. That's always a big piece of it. You mentioned that your members are large apartment owners, is there a specific size? Can we define like, maybe talk a little bit about what apartment looks like across the US? Is it multi? Is it over 100 units per apartment complex? Is it you know, five to 10 any insights into that?

Christopher Bruen: 4:37

Well, our definition is a rental unit in a building with five or more units. But our members are all different sizes except we definitely have a large representation of professionally managed buildings.

Aaron Norris: 4:57

Has that changed at all over time? Apartments, are they getting bigger or smaller? Any trends in that space that you're seeing?

Christopher Bruen: 5:06

Um, I don't know, if you want, if do you have anything to add to this, Claire, or?

Claire Gray: 5:12

Um, well, I know, we, we've seen kind of over time that apartment buildings I think are getting bigger and maybe the units are getting a little smaller, maybe more one bedrooms and efficiencies, especially in probably urban markets, trying to save space.

Aaron Norris: 5:31

I love the New York City, it makes me laugh when somebody says efficiency because I've lived in one of those efficiencies.

Christopher Bruen: 5:36

I live in one currently. And yeah, we, we looked at this data recently, and I think since like 2006, I believe was the year after which there was, there started to be a higher share of units built that were either one bedrooms or efficiencies.

Aaron Norris: 5:56

Okay. Is that the Japan model? Aren't they very known, well known for that? I can't remember if it's China or Japan, like they just, it's, in order to live in like really great cities. It's almost like a cage. It's really uncomfortable to watch. And they have

Christopher Bruen: 6:09

I know, there's a lot of that in Japan. Yeah.

Aaron Norris: 6:13

It's just interesting like having lived seven years in New York, you know, you're there for the experience you never, when I was there, I was living in various strange places. And it was just, I was there to live in a great city, I was. And when I was into the apartment, I was asleep so I didn't care. But, you know, because of COVID. There's a lot of conversation about migration. And let's just talk about some of the trends or is there anything that has really surprised you in the apartment space in 2020 because of COVID?

Christopher Bruen: 6:45

I can't say anything that surprised me, I, COVID itself is such a large shock and surprise that. I don't know if there's really any expectation there to begin with.

Aaron Norris: 6:59

Okay, Claire?

Claire Gray: 7:01

Um, yeah, I think Chris is going to get more into that on our quarterly survey later. But um, we survey our members based on a few regular questions every quarter. But we also usually try to ask a special question that's a little more topical to what's going on in the market, or what we think they might be seeing. And our most recent quarterly survey in October, we asked our members if they're seeing increased demand, based on certain building and unit types. So, overwhelmingly, the highest demand they were seeing was in the garden style apartments in both the efficiencies and one bedrooms, and also the two plus bedroom units. So, probably just people, you're stuck at home, you want to try to get maybe out of the city a little more space, that kind of thing.

Aaron Norris: 7:48

I was gonna say, I don't know if I know that garden style. What does that mean?

Claire Gray: 7:52

It's, it's more of like a two to four story kind of walk-up type apartment. They might buildings might be small, but the property might have several buildings, not like the mid and high-rise that you might see.

Aaron Norris: 8:04

Got it.

Claire Gray: 8:04

In downtown areas.

Aaron Norris: 8:07

That's where I lived in New York, a lot of walkups. And it was typically always the fifth floor. Garden style that makes it sounds so lovely.

Claire Gray: 8:15

Yeah.

Aaron Norris: 8:16

Well, let's get into the quarterly reports because your team really produces a lot of really great data. So, maybe Chris, you can tell us what's included in some of the things you cover?

Christopher Bruen: 8:26

Yes, so we have three different publications that we come out with quarterly. We have our quarterly survey, where we survey our members on four main metrics, we asked them whether or not they think that they're, that the markets in which they operate there is that the market is becoming tighter or looser, if sales volumes are increasing or decreasing, and this is all relative to the prior quarter. And also, if equity and debt financing has become more or less available. And from their responses, we construct an index ranging from one to 150 representing no quarterly change. So, if there's an equal number of respondents who say they think things are improving relative to those who think things are getting worse than it would be just at 50 there.

Aaron Norris: 9:29

Wow. So, how many owners do you survey? Just curious?

Christopher Bruen: 9:34

We usually get around. Claire, would you say around 150 responses?

Claire Gray: 9:40

Yeah, I was gonna say anywhere from 100 to 200. I think it just depends. You know, sometimes in the winter time or summer, people are out on vacation, maybe not as many but.

Aaron Norris: 9:49

Any idea how many, of those 150 how many units they represent total?

Christopher Bruen: 9:56

It's not something that we track.

Aaron Norris: 9:58

Ah, got it. Okay, but I mean, those are 150 owners, and they, some of them are going to own many, many apartment buildings. So, there's going to be quite a few. So, that's good to know. So, what have you, what are you guys seeing as far as some of the data that you're, you're seeing?

Christopher Bruen: 10:16

Let me think so. I'm trying to recall, I have some notes here on the first quarterly survey we had during COVID in April, had all the indices come in below 50. So, conditionally indicative of, you know, market conditions were getting worse. There was pretty widespread agreement about about that. And then in July, all the indices also came in below 50, with the exception of the index for debt financing. I was after the Federal Reserve took some pretty aggressive actions, and interest rates got lower. So, you can see how maybe there is increased availability of debt financing there. And then, in our most recent survey, let me try to remember.

Claire Gray: 11:16

I think it was just market tightness was the only one below 50.

Christopher Bruen: 11:21

Right. So, yeah, so markets got looser for a third consecutive quarter, but but everything else was trending up. So, there is an increased sales activity, and more availability of debt and equity financing.

Aaron Norris: 11:40

That's a good thing and would definitely aid in that tightness number. So, the things are moving, are you, are you able to see insights into specific area like urban markets, like New York and San Francisco, compared to more rural and suburban markets?

Christopher Bruen: 11:58

So, we, we sometimes receive some data, data from a private data provider called a real page, and they have some more detailed market specific data. And we have looked at occupancy changes and rent growth by markets. I'm looking at the second quarter data here. And we saw, let's see, in the second quarter, actually rent increased in low rise buildings. And there was a rent decrease, negative rent growth in mid rises, and even larger, negative rent growth in high rises. So, that, that is consistent with urban markets taking a little bit more of a hit. And it was a similar story with occupancy that saw a decline in occupancy, most in in the high rise buildings.

Aaron Norris: 12:58

What are you seeing as far as the percentage of rents being paid right now from your members?

Claire Gray: 13:05

So, for a little background, we started a rent payment tracker in April with five private data providers that provide property management software. And so, from April, we've been tracking that. And it, it did take a little bit of a dip in April, but really through, through the summer, things were down a percentage point or two from where they were last year, for full month results. So, yeah, really, really speaking to, you know, people want a safe place to live there. You're paying their rent. And I know, we've heard, anecdotally that, you know, property operators are, you know, have these open lines of communication with their residents, maybe they're helping them find local, you know, rental assistance or food aid, that kind of stuff helping to make ends meet. So, we did see a little bit more of a deterioration in the full month, November results, it was down about three and a half percentage points from the previous November. But we don't have our full December results yet.

Aaron Norris: 14:11

Yeah, everybody's calculating that up. And that's, that's interesting. And of course, were waiting to see the Congress get through another aid package, which came through and rumored ours are already working on the next one and the vaccines coming out. So, are you getting a sense that apartment owners are relatively positive for 2021?

Christopher Bruen: 14:38

I don't know if I've ever, it's not as if I've spoken to any owners about if they're, what their outlook is like. But I just wanted to get back real quick to the collections to show that you know, while those collection figures are are positive that's not to say that residents aren't struggling to make their payments. And it's not to say it, you know, we hear a lot of instances of owners working out different payment plans with residents, so. So, even though a lot of them end up making their payments, there's kind of more to that story.

Aaron Norris: 15:24

Okay, so you're saying.

Claire Gray: 15:26

Definitely.

Aaron Norris: 15:26

Got it.

Claire Gray: 15:28

And those percentages are upside.

Christopher Bruen: 15:31

Oh, go ahead, Claire.

Claire Gray: 15:32

I was just gonna say, it's also those percentages are for a full or partial rent payment, or they could be on a payment plan. Yeah, like Chris was saying the story's a little more nuanced. And it's also, with the five data providers, we're looking at a universe of about 11 and a half million units. So, even a three and a half percentage point decrease is almost 400,000 households that didn't pay rent, you know, so, when you put a number to it, it is still maybe a little bit of a stark picture. But the like you were saying the COVID relief bill, with rental assistance and expanded unemployment definitely came when it was needed, you know,

Aaron Norris: 16:13

Yeah, we've brought this up a few times on the show. I'm on the board of 211 for Riverside County, which is a Health and Human Services hotline. And our United Way that runs the 211 actually got the CARES Act funding to work with landlords to pass on grants to to pay back rent for tenants. And there's some very large landlords who got some very large checks, which is incredibly helpful. I wish everything was so easy. Unfortunately, 211's are managed differently at every county level. So, you don't, they're not all structured the same way. But I'm sure that the aid that's coming through the CARES Act has just been very hit and miss, depending on where these apartment owners are located, unfortunately. And if they live out of state, and they're not professionally managed, maybe it's a mom and pops, you know, the tenants might have a very different experience. If the landlords don't know what's available locally. It's just hard to follow all this stuff, it's changing so quickly.

Claire Gray: 17:15

Because, that something too with our rent tracker, it is just professionally managed department, so, it doesn't capture any of the smaller properties like mom and pop, like you mentioned, or subsidized housing or military housing, it's really those, you know, Class A, Class B professionally managed departments.

Aaron Norris: 17:34

Do you get a sense of nationwide who owns apartment buildings? Is it predominantly professionally managed? Or are there a lot of mom and pops in the space?

Claire Gray: 17:45

There are a lot of a lot of smaller buildings, smaller owners, even if, you know, maybe it's a mom and pop and they own a couple buildings. But it could be a couple buildings that have four units. You know, we're really, the income that they're making from rent is to pay the mortgage and put food on the table. And that's, that's it, you know.

Christopher Bruen: 18:06

We have come, we come out with our annual top 50 list, largest owners. And when we do that, we, we look at the percentage, you know what share that those 50 are of the total apartment stock, which there are around 20 or 20, 20. 1 million apartments. And I can't recall how many were in the top 50 last year. But we you know, we do report on what that concentration is.

Aaron Norris: 18:46

Interesting. So, there are a lot of mom and pops out there. I always tell a lot of real estate professionals in different buckets, if especially investors, investors seem to be very independent, not always part of associations, they, I don't know if they necessarily understand the value and how much work it takes to do the kind of research that you do, and advocating on behalf of the industry and that very political side of lobbying and providing data. So, join your local associations and national associations. It's, it's pretty incredible. And on your website, you've got so many other things you've got. You've got the quarterly survey, the rent payment tracker, and you've got the construction survey too. Is that the third thing that you're talking about?

Christopher Bruen: 19:30

Well, actually, no, that's so, that, that is an additional survey that we started to put out during COVID.

Aaron Norris: 19:39

Oh, wow. You decided to start a whole bunch of new things during COVID, good for you.

Christopher Bruen: 19:47

Yeah, I mean, we have our three main publications which I talked about quarterly survey. We also have our market trends publication where we you know, report and comment on key metrics in the industry like rent growth, vacancy, demand levels, that kind of thing. And then we also have a research notes, publication quarterly publication where we do more in depth research on just whatever topics we find interesting or relevant to the time. But, but yeah, that in addition to those, we have been putting out this construction survey throughout COVID. I think Claire's, probably more familiar with some of the findings.

Claire Gray: 20:34

Yeah. So, we, we started this because, you know, like, you were saying, during COVID, people were just hungry for information. And we have a variety of different members. And so, early on in the pandemic, there was a construction moratorium. That kind of halted, all construction, multifamily included. So, we were trying to capture what was going on with our members so that our lobbyists could take that information to the hill. So, we started in, I think, late March, and we've done five rounds kind of spread out with the most recent round happening in October. And pretty consistently, there have been about 55% of respondents that were reporting construction delays. And of those, we asked if it's in permitting or starts, and pretty consistently over the course of our surveying, it's increased the share that have said it's, you know, they're experiencing delays in permitting. I know, in our most recent round in October, it was 90% of those that were experiencing delays, were experiencing them in permitting. 77% were experiencing delays and starts for their construction. We ask what's causing the delays? Obviously, economic uncertainty was a popular answer, but also some of that permitting and, permitting and entitlement. And also, availability of finance. We ask if they're experiencing delays in financing, which was a popular answer, or, or if they were unable to get financing, which it seems that the issue where it was just delays, not so much that they couldn't get it, but there's just a lot of backup right now. I know, we asked about materials. So, if they're experiencing a lack of materials or price increases in materials, so early on, especially imported materials, like countertops from Italy, or things like that, that maybe you're not thinking about being part of this big picture, but were elevators or cabinetry or AC units. As far as price increases, I know, lumber has been an answer. Every single survey people are seeing price increases in lumber, and also everyone's doing home projects, because they're stuck at home.

Aaron Norris: 23:00

Sucking up all that wood

Claire Gray: 23:02

Yeah, exactly. So, so that's a lot of what we're seeing. But our members also say that they've, you know, adopted new strategies to overcome some of these hurdles. Maybe it's new technology, maybe it's health screenings, it's PPE, it's staggering shifts. So, it's been really interesting to see kind of what our members have been doing to be proactive about what's going on. And I think because of some of that they, there haven't been as many issues with labor early on, it was like, oh, people are getting sick, they're not showing up. They're, they're nervous about getting their family sick, that kind of thing. But as we've gone on a, you know, worked out the kinks and figured out how to get everybody there safely and still work.

Aaron Norris: 23:45

I got a, I was telling Chris, before we started recording, I just got an email. I am very close to the building industry. And I got an email from one of the county's health department saying that their staff was being diverted to COVID response and vaccinations and that to expect more delays for the health, specifically health permitting, health department. So, I was like, Oh, boy, here we go. Yeah, doing 1031 exchanges. That's not the news that you want to hear. Tenants, do you do any research on tenants what they look like how they've changed over the years? Sort of at the demographic level?

Christopher Bruen: 24:27

Yes. So, well, so we talked a little bit about there being more one bedrooms and efficiencies. And one reason for that is that there are a lot of single people out there. There's some, been some broad demographic trends. People tend to be getting married later, having kids later. So, taking longer to make that transition from rentership to ownership. And also, there's been a long run trend of more young adults living with their parents. Which kind of so, there's this kind of dual effect on demand for apartments there that on the one hand, you have people renting for longer. But then you also have more individuals who haven't even entered the market yet. We're still at mom and dad. But I think that might explain some of the unit mix out there catering to, to singles.

Aaron Norris: 25:51

Boomers, are our seniors deciding to move down in two exciting cities into some of these efficiency units just looking for something to do maybe?

Christopher Bruen: 26:00

So, actually, we looked at that, you know, you often hear this narrative of downsizing baby boomer, like, are they moving to the city at higher rates than other generations. And what we found was actually that they're not really doing so at higher rates. It's just that they're, they're just such a large generation, you know, there, there's so many of them, that whatever they do is magnified. So, yes, obviously, as they get older, you're going to see a lot of them moving into cities, but it's not as if they're only doing that they're, you know, they're they're not really that much different than, than prior generations from what we've seen.

Aaron Norris: 26:47

Has there been, as far as apartment construction, have you guys done any research on the features that owners has their building or having to lien into sort of for the next generation of apartment dwellers?

Christopher Bruen: 27:02

Well, we, we do conduct it, we another thing we do is we conduct a resident preferences survey, because, you know, we're trying to get a feel for what people care about.

Aaron Norris: 27:13

Yeah.

Christopher Bruen: 27:15

Our last survey, we had responses from, I'm trying to recall, I think 270,000 renters across the US and Claire and I, I guess we could, we could try to recall some of the main findings, and I'm trying to remember what, what they cared about.

Claire Gray: 27:39

Things like gyms are still important. I think more of the kind of, we call them like, on demand, or, you know, people want seamless interactions, like maybe it's a tech in their apartment or like, key fobs, things like that.

Christopher Bruen: 27:57

High speed internet.

Claire Gray: 27:57

Roof top spaces, high speed internet.

Christopher Bruen: 27:59

It's always a big one.

Claire Gray: 28:01

Yeah.

Christopher Bruen: 28:02

You know, a lot of you know, the basics as well like air conditioning.

Aaron Norris: 28:10

Having lived in New York, I get it. It's not everywhere. Okay.

Christopher Bruen: 28:17

Oh, and one of the features that always tops the list is soundproof walls.

Claire Gray: 28:24

Yes.

Aaron Norris: 28:26

Amen to that one. I've lived below somebody in a basement apartment in New York that like to bounce basketballs at six o'clock in the morning quite consistently. So.

Christopher Bruen: 28:39

Yeah.

Claire Gray: 28:40

Yeah, I tell my family that I live in that clogging insurance commercial. You know, I'm not sure which insurance company it was. But it shows the family above them clogging and you can hear them. I get it too.

Aaron Norris: 28:54

Yeah, there's a it's definitely a different living experience. But having lived in downtown Los Angeles, and it was the first time I was in a rental unit in a while. I was really surprised to see all the technology, their target market was definitely something different that I had not experienced in New York as a starving artist. So, in this building, the fancy cars below, the huge gym, the full basketball court, the movie theater, the office space that you could rent. I mean, the amenities are pretty spectacular in downtown LA and it came with a price. And then I'm looking at trends like coliving and the professionalization of the space that actually do a good job stripping all those amenities, where the concept is just one price gets you everything up to I've seen some coliving companies do things like salt and pepper and olive oil, and you know, monthly cleaning, and going as far as doing things like activities like hey, we've put together a coffee with your local council member. So, it's almost like you're selling a lifestyle, not just an, a unit. So, has there been any pressure that you've seen on the feature front that's more lifestyle driven and not featured on?

Christopher Bruen: 30:11

You know, we asked about that stuff in our survey as well. And I feel like if I recall correctly, people, renters that it's really kind of secondary to them, I think, to, to the, to the, you know, things like, what they're paying and, and that their unit has like the essentials. Okay.

Claire Gray: 30:36

I would say also, you know, sometimes we break it out by age or income or geography and I feel like, for younger renters, sometimes it's the best would be nice to have not need to have kind of things aside from you know, AC and high speed internet is a need to have for everyone. But I, we found that the younger renters, I think, are also we asked if they're open to like coliving situations, or if they would be open to short term rentals in their building. And generally, they were more open. I think we asked if they would definitely or would possibly be interested in that. And they were definitely more open to it than the renters that are a little bit older, living in apartments.

Aaron Norris: 31:19

A little more flexible. Okay.

Christopher Bruen: 31:21

Yeah.

Aaron Norris: 31:22

I'm just thinking about owners, or I definitely have some people in my life that are, you know, they've done single family for a long time, and they're getting into the commercial space, and so interested in exploring apartments and what that would mean, and I'm sure it's very market driven, as far as the features and maybe the demographic that you're chasing, you know, if you're in some markets, it is just a story about essentials. But if you're in markets that are highly competitive, and people have choices, and you want a specific target rent, you got to play ball a little bit. But yeah, just, just curious. I was gonna ask you on the, on the construction side, are you expecting a good amount of construction this year?

Christopher Bruen: 32:04

So, I was just looking at kind of what our completions figures have been. And I had the tab open, had the tab open. But completions have actually been, we're actually up a little bit in the third quarter. At some of the highest levels we've seen, so, even though permits and starts were down, so I guess they're there, despite delays, there were still a lot of units coming online there. So, I would, I would expect, you know, for the year, you know, the, I guess the first two quarters were a bit lower, but, but not by much. So, I think we're still looking at pretty high levels of completions there.

Aaron Norris: 32:48

Okay, with it starts we're lower, we might not see that, you know, for another year or so, right? It might slow down next year is almost like the COVID pause for construction, and then might pick up a little bit. You know, affordable housing is a is a huge conversation. I know in the single-family space, I'm here in California, it's almost like a joke. It's like, yeah, we can't build affordable housing in California, is there a lot of pressure on your industry to somehow pick up the slack in that department?

Christopher Bruen: 33:17

Sure, you know, we track the percentage of apartment households that are what we call burdened, or severely burdened who are paying over 30% of their income, on rents, that's, that's cost burdened and severely burden would be paying over 50% of their income on rent. And these have been figures that have been going up, since as far back as we've been tracking, you know, like, back to the 80's. Burden levels just keep getting higher. And this is partly an income issue. If you look at income growth over time, it's been very lackluster, especially for those without college degrees, very stagnant income growth. And for those with very low levels of income, it's, it's almost impossible to build housing that's affordable, you know. So, there's the income side, and then you have some of the areas of the country where you just have really high levels of population growth, and not nearly enough construction to keep up with that.

Aaron Norris: 34:41

Yeah, a lot of people putting pressure on fewer and fewer rentals. So, yeah, the prices are just gonna keep going up and people get pushed out and it gets very political. You know, what, what can we in the industry even do? I don't know.

Christopher Bruen: 34:54

And actually, there's a, if you look at, so, and I know it seems like in the past decade or so we've been building a lot of apartments. But meanwhile, we've seen, you know, vacancy levels go down, like high rent growth. And you think, why is this happening? It seems like we're building a lot. But if you zoom out and look at a longer-term perspective, we haven't been building. So, this is, this is when, you know, you know, millennials have been entering the housing market now. But when boomers entered, we were building much more apartments, back in, you know, the early 70's. And through the 80's, much higher levels of apartment completions.

Aaron Norris: 35:43

I see that. I follow the data here a lot in California, and this came up. Where was I speaking, I was speaking at a Realtor Association. Somebody asked me about builder and like, you know, part of the problem is that it's almost like we took a full decade off of creating buildable lots. We haven't turned raw land into buildable places where builders can have at it. So, we're behind. And that is not a fast process. The entitlement process is not fun. One of the opportunities I hear coming up more often is the concept of mall renovations, for cities that don't want their mall to become the next Amazon distribution center, maybe building in density in new ways. Are you part of more conversations as cities sort of rethink their master plans and building in density?

Christopher Bruen: 36:39

I don't know if we, our department has been part of any of those conversations per se. But I.

Aaron Norris: 36:44

Well you should be.

Christopher Bruen: 36:45

I should. I'm just thinking I have a good one I'm going to one of my best friends is in Indianapolis and his apartment building was in an old mall. A really interesting building.

Claire Gray: 37:00

Yeah, I know here in Arlington, I've heard more about like office conversions into apartments as well.

Aaron Norris: 37:08

Really? Yeah, that's a whole different COVID conversation, right? That not as many offices are needed, or the hospitality? Can we convert them somehow? I wasn't expecting the office thing that come up, though. That's interesting.

Claire Gray: 37:22

It could just be one particular building. I just know, in my little, well not a little neighborhood. But in my neighborhood, that's what I've heard.

Aaron Norris: 37:29

We have, we have quite a few real estate investors that they'll hear different things as we're talking and go Oh, okay. And the process of going down to a city and sometimes you don't know, until you ask you go down to the planning department and see what they're willing to do. And I was in downtown LA working right before the downturn, and they were converting actually quite a few things like the Edison the old utility building into a condo building, so, is going on quite a bit. So, you just never know, downtown LA has completely changed over the last 15 years with residential. Is there any cities that look like they're going to just be really hot in the next couple years, for apartments?

Christopher Bruen: 38:14

I mean, so we generally try to stay away from forecasting and.

Aaron Norris: 38:20

Got it. That's fine.

Christopher Bruen: 38:21

In future in that way? Yeah.

Aaron Norris: 38:23

What are the interesting things shall we talk about in the apartment space? It's definitely not my, my wheelhouse, necessarily. But I'm fascinated with the trends and some of the data, as people sort of consider sort of how to tackle next year, this year.

Christopher Bruen: 38:39

Hmm. Well, I guess one topic I maybe should have talked a little bit more about before, when we were talking about migration is that when, when COVID did hit I, I conducted a little study to try to anticipate how something like this would affect where people are moving. And like I said earlier, we didn't have much to go on in terms of like, other pandemics. But I did want to play with that idea of you know, I actually, actually focused on young adults, I wanted to play with that idea of young adults are choosing whether or not to live with their parents or, or if they're going to form households and if they form households, if they're going to rents, if they're going to own or if they'll rent if if they are going to have roommates, you know, and figured, figured that a lot, a lot of this is, a, you know a function of income. So, I what I did, at the time, I was using 2018 data, and I just wanted to see the relationship between the likelihood of, of, of either living with their parents or renting it alone or renting it with roommates, or, or owning a home relationship between that, that likelihood and a number of factors like your age, your income, your educational attainment, your race. And then once I construct that model, I, you know, you can play with it and see what happens if you decrease people's incomes, you know, what would happen. And I think my findings were kind of as you would expect, with lower incomes, you get a lower likelihood that people are going to buy homes, you have a higher likelihood that people are going to live with roommates if they're renting, and you have a higher likelihood that people are going to live with their parents. And in fact, what we have seen, we've been tracking through the Current Population Survey, the share of young adults living with the parents, and during this COVID, period, they've reached the highest share since the Great Recession.

Aaron Norris: 41:22

Really. Wow.

Christopher Bruen: 41:25

This is this is, you know, that share has, there has been a longer term trend there as well. Yeah. As I spoke to before, we have seen more young adult, young adults living with their parents, but even in the shorter term, because of COVID. That's, that's spiked.

Aaron Norris: 41:45

I've definitely heard that I mean, the millennials, let's be honest, millennials were called the boomerang generation, you know, staying at the parents home for a really long time. And some of them are buying habits though, too, were really interesting. They were renting a lot longer. But when they got into homeownership, they were jumping in some states like California, their median purchase price was on par with what boomers were buying. And that was just a few years ago, it was so interesting. So, that kind of information is just so important to understand the trends because it could really change what you build, where you build. Interesting.

Christopher Bruen: 42:19

And it has implications for the apartment industry, obviously, you know, those folks living with their parents, presumably, that's pent up demand for apartments that eventually though, you know, those people are going to want to form their own households. But maybe they're going to take longer to do so. And, and when they do form their households, they might take longer to buy a home, you know.

Aaron Norris: 42:47

One of my, my favorite micro living stories is the oldest mall in Rhode Island, it was, I think, maybe in America got converted to micro units, 300 square foot. And there's this YouTube video talking about a nurse that she trains in for the week, and she lives there, and then she doesn't live there. Do you think COVID will change some of those sort of, I don't know, I don't even know what you call those kind of people that are looking at these efficiency units because they're executives or, you know, they just don't want to drive the hour or two, in markets like New York or San Francisco. Think anything might change there is when it specifically comes to apartment demand and these efficiency units or one bedroom?

Christopher Bruen: 43:32

I mean, is your hypothesis there that there will be less demands for the efficiency? Because because they'll be working from home or?

Aaron Norris: 43:41

Yeah, exactly.

Christopher Bruen: 43:44

I think you know, that's something everyone's been trying to speculate about. And but it's not something you could really, I don't think there's any any data that will help you there. It's, it's trying to predict people's future behavior, you know, are people going to revert to how things were beforehand? Or are you going to keep, are we going to start going into the office like we did before? And I don't, I don't know if I have an answer. I don't know how you feel Claire.

Claire Gray: 44:13

I was going to say with the our quarterly survey special question that asked about where our members were seeing demand in those like particular property and unit types. We also asked them how long they thought so again, this is just totally opinion, but most of them, we gave them the option of like through the pandemic or six to 12 months beyond the pandemic, and then, and then longer timeframes as well. But those two were the ones that were most popular. So, I think people probably feel like there's a, you know, return to city, that kind of thing.

Aaron Norris: 44:50

I think so, there's a different reason why you live in the city and I don't know, I guess I just feel like a lot of people are just dying to get back to normal.

Christopher Bruen: 44:58

And this is just you know, me speaking, I, I could have moved out of the city and I've chosen to stay in my tiny apartment. And so, you know, people like me still see the benefit and are eagerly awaiting for things to be reopened. And, you know, obviously there's much more to a city than being close to where you work. There's a lot, there are a lot of, you know, amenities restaurants, bars that people like being here for.

Aaron Norris: 45:29

Yeah. It's about lifestyle, quality of life. And it's just it's so different. I joke about is there going to be like buyer's remorse in a year when they finally get to experience their first winter in Minneapolis or, you know, experience Florida's humidity for the first time over summer? Like, I'm going back, I'm going back.

Christopher Bruen: 45:47

Well, it's interesting, you mentioned that, you know, buyer's remorse, I think that's been another kind of narrative that. I don't know, if I have, I've seen any data on it. But that, you know, a lot of people are buying homes. And, you know, like I said earlier, like, if, you know, when the economy takes a hit, all else being equal, you're gonna expect I think, fewer home purchases and, and COVID is maybe a bit different. And and you might have people who are already going to buy a home, we thought, Okay, this is my chance to get out in New York. And, and, you know, you hear stories of people who, who have tons of money, and maybe it's not an issue for them to do so. But I, you know, long term, I can't see how COVID will increase home purchases in that way, you know, you don't necessarily have to buy a home to move to the suburbs, or to move out of the city.

Aaron Norris: 46:51

Yeah, and it's part of it's just a function of lower listings right now. I mean, in some markets, it's just so insane, I was talking to a realtor in the Palm Springs area that they've never had in a really high dollar category, you know, multiple offers, like offers when they used to experience only two realtors in San Diego and Palm Springs talking about Bay Area, people coming down. Because their median purchase price of a home of theirs, I think something like 1.7 million where in San Diego and Palm Springs that's half that easily. So, it's just so interesting if the remote work does stick long term. And you know, the office says I only need you up here once a week, twice a month, you know, all of a sudden buying a house for in San Diego and taking a flight up to San Francisco, it might work. I don't know. I guess that's the thing I'm waiting for the one data point that I'm really interested is to see if remote work is going to stick. And if we've if off businesses like this model, being on zoom all the time, I don't know.

Christopher Bruen: 47:59

Well, even within our company, before COVID even hit, we had more people switching sometimes full time, remote work, partly as a function of you know, we have limited office space and someone wants to work from home.

Aaron Norris: 48:18

All right, so you guys were already used to it. And, and this has forced the entire nation all at once to get really good at this conversation. So, that's what I'm excited about. We'll see. Claire, have you been working on any kind of research that gets you excited?

Claire Gray: 48:33

I also did a research notes like Chris was talking about his earlier on. I worked on one in September that kind of looked at which renters have been most affected by the job losses that we've experienced during the pandemic. So, that was really interesting. Because you know, there are some publications from like Urban Institute or Turner center that looked at how renters have been impacted, but we kind of wanted to take it a step further and look at apartment renters because that's what we're dealing with. So, we found that there were some occupations that face significant job loss that also employed a greater share of apartment residents. Some of those being accommodation and food services, arts, entertainment and recreation. So, apartment, residents make up about 12 and a half percent of the adult population in the US, we looked at where they made up a greater portion of some of these sectors and sub sectors, we use data from the current employment statistics survey from BLS to see job losses and then we use the American Community Survey to look at their occupation codes and shares of apartment residents in those occupations and match them up. And so for example, accommodation and food services 18% of that workforce is apartment residents, which is a higher share than the US population on the whole. I know motion picture and sound recording face like a 50% employment loss from the start of the pandemic through August, that was the timeframe we were looking at at the time. And I think it was about 21% of those employees are permanent residents. arts and entertainment, or arts and spectator sports, about 18% of those residents or those employees are permanent residents. And they also face pretty significant job losses. So, just those industries where relative to the size of the industry, they face great job losses. Because one thing motion picture and sound recording, not a huge industry, but when you look at relative to the size of it, the share of job loss was pretty significant.

Aaron Norris: 50:58

Like in cities like LA, though, that's that's a sizable portion of the workforce. So, yeah, I could definitely see how that would impact. Yeah.

Claire Gray: 51:07

Yeah, exactly. We did take a look also at kind of the geographic concentration, and it is, you know, it's kind of the tourism driven industries that really were hit the hardest. And so in places like LA and New York, had a high share of those apartment residents that have faced job losses. But we also saw that in Miami and Orlando and Las Vegas for those more tourism driven ones. And then, of course, the arts and entertainment also in New York and LA are really hard hit.

Aaron Norris: 51:39

That makes sense. What is, um, what's your guys' process? Where, where does the concept of doing research start from? Is it your, your members? Is it Congress, you wake up in the middle of the night, just have a dream about this next data set you want to find out?

Christopher Bruen: 51:58

Sometimes it comes from members, they'll contact us and ask us all sorts of questions that they're interested in. And sometimes we'll find it really interesting, too. I think sometimes it's just, you know, one of us will think of it and we'll all agree that it's a worthwhile idea.

Aaron Norris: 52:19

Very cool. So, anything on the radar for 2021, that you're just dying to tackle?

Christopher Bruen: 52:27

Um, let me think,

Aaron Norris: 52:30

Or data that you wished existed that you don't have?

Christopher Bruen: 52:36

I guess, you know, one topic that's come up recently, that we've been thinking about is, you know, we get this question a lot. How, what's the average length that people are staying in an apartment? And we've never had a good way of getting that back. So, so, we normally look at like, different census, census surveys, which are different cross sections every year. So, it doesn't, doesn't follow the same people over the years. And what we are able to see in, what we, what we typically track is like the percentage of apartment renters that have moved in the past year.

Aaron Norris: 53:21

Okay.

Christopher Bruen: 53:22

Which is, which is interesting in itself. Especially since, I don't know if you're, if you're aware that internal mobility as has been declining for decades in this country.

Aaron Norris: 53:37

What do you mean by that?

Christopher Bruen: 53:38

That people are moving less frequently.

Aaron Norris: 53:42

Oh, you mean as a geographical location or just in general? Like I parked in this apartment, I'm staying here for a really long time.

Christopher Bruen: 53:49

Yeah, the latter,so.

Aaron Norris: 53:51

Okay.

Christopher Bruen: 53:51

So, in any given year, you know, the percentage of people who have moved in the past year has been declining. And, you know, we've, we've, even after taking into account differences in income, education, all these things. There's, there's still this decrease in mobility that we haven't been able to completely explain.

Aaron Norris: 54:17

That's interesting, because that's happening in the single-family home space, though, as well, like.

Christopher Bruen: 54:21

Oh, yeah, absolutely, in every space. Yeah.

Aaron Norris: 54:25

Interesting. I really didn't know that, that was happening in the apartment space. And, hmm.

Christopher Bruen: 54:30

Well, obviously, you know, apartment residents move more frequently than people in single family but, but yet, still at a slower rate than they did like 10 years ago. But anyways, aside from that interesting trend, which I'm always looking to try to get to the bottom of, we are looking at ways to maybe use those rates, the percentage of people who have moved in the past year to approximate what the average length of stay is for different subpopulations.

Aaron Norris: 55:06

That'd be a really interesting metric. Because if you're an apartment owner and yours is just really messed up, you're like, I have a really crappy manager. It is. That's a, that would be a really cool data point. Okay.

Christopher Bruen: 55:17

Yeah.

Aaron Norris: 55:18

All right, Claire, you have anything interesting you want to tackle in 2021?

Claire Gray: 55:23

Gosh, I'm sure there is, it hasn't. I would say it hasn't come to me yet. But it's.

Aaron Norris: 55:29

Fair enough. Any tech trends that, well, actually, I wanted to ask real quick, you mentioned that you work with some of these software providers, which they might have some of this data. I mean, how awesome has that been, that more apartment owners are leaning on these technology providers? So, you have access to that? That's cool.

Claire Gray: 55:50

Yeah, it's definitely been helpful for us tracking what's been going on through the pandemic.

Aaron Norris: 55:56

Because I know mom and pops probably wouldn't capture all the bullet points that they can have give you access to that for sure. Technology trends in, I attended CES last year. And one of the things I was fascinated with the most was, there is a company that worked with apartment buildings. And at the time, they were working with a number of very large operators in Los Angeles, where they were putting sensors, sensors on the AC and the water heater. And they had a partnership with utility. And when the utility needed to burn off extra electricity, so they didn't have to sell it off the grid. They would just hike up the AC and the property owner actually made money. It was really fascinating to me. Have you heard of any really cool technology that has gotten you really excited about the apartment space in the last year?

Claire Gray: 56:48

We, we have an annual operate, it's called OPTECH. So, it's Operations and Technology Conference that took place in November virtually for us, which is really interesting. And there's always a lot of programming. So, sometimes it's it's hard to even take all of it in. I know something that they talked about a lot with COVID. You know, apartment operators kind of had to make this like automatic switch to virtual leasing, virtual tours, that kind of thing. And you know, is that here to stay, which it seems like in some scenarios, it is people are just, they want to see their unit, but maybe they're fine with a video or something like that. So, that's something that kind of came out of necessity at the beginning of Coronavirus. Some people had adopted it beforehand, but not a ton and just know it's whether or not it's here to stay. That's something that people were talking about a lot, just that automated component.

Aaron Norris: 57:46

All right. Chris, you see anything that got you excited from that conference?

Christopher Bruen: 57:52

I'm trying to remember. I don't know if we had a Innovation Challenge this year, Claire?

Claire Gray: 57:58

I don't think so.

Christopher Bruen: 57:59

But I'm trying to recall where the winner was last time. And what that was.

Claire Gray: 58:06

I think it had to do with modular building.

Aaron Norris: 58:10

Ah.

Claire Gray: 58:11

Which is really interesting.

Christopher Bruen: 58:13

I think you're right. And, and that's a topic that always comes up. And it always seems fascinating, but I I've never really got into the weeds to, to know how much of an impact that might have on the industry.

Aaron Norris: 58:29

It's still really expensive out here in California, we have Accessory Dwelling Units. That's been a huge conversation because of affordable housing, and the state has mandated it. And there's definitely a supply chain issue right now. Labor is an issue out here like you guys we've already talked about. But it's still just too expensive. So, 3d printing, modular. I'm really excited about it, but it still has to come down in price a little bit. But IKEA just raised their hand. They're building Tiny Homes now. And you know, fun fact, Amazon several years ago invested in plant prefab they actually do manufacturing here in California very close to where I live. And they do multi, they have a multi called Nest. And so, it's very modular, but it's built off site and brought in it and it speaks California's language, it's green, because it's done in a warehouse and you know, all this kind of stuff. If they can, if they can make it affordable. I just think that's got to be the future with robotics. And I just I love this stuff. So, plant free have like, one of the only ones that I know about in the commercial space right now, but I've seen others with them. Oh gosh, what is it called? The shipping containers and piecing them all together?

Claire Gray: 59:45

I don't know seeing that. I was gonna say Um, I don't remember if it was last year, maybe the year before. Someone maybe HUD put on like an innovation type challenge on the mall here in DC. And I'm pretty sure someone 3d printed tiny house on the mall, you know, just very cool exposure to that kind of technology.

Aaron Norris: 1:00:08

Yeah, Icon, Bill Mighty buildings they're trying. Icon is out of Austin, Mighty buildings is based out of here in California. So, they're here but the average price point is just it's just really high Plant Prefab has a modular unit that's Um, I think it's, it gets the starting point is around 180 grand. So, you're like, Oh, that's a little steep. But it's coming. So, I'm excited now with IKEA in the mix, you know. Who knows what's next? So, let's talk a little bit we've we've run out of time, how can people find specifically your work? Where can they go on the website and stay in touch?

Christopher Bruen: 1:00:48

Well, I think you know, our website's gotten a little bit better over the years, it's a little bit easier to navigate. If you could just go to NMHC.org and go to research and insight should be pretty easy from there to find what you're looking for. And if you want to contact Claire, or I individually, if you go to About, to Staff, you can find our contact info. You know, there might have been things done in this interview that we've forgotten or that you want to know more about just you know, feel free to give us a call or shoot us an email.

Aaron Norris: 1:01:23

Very cool. And right. I will I will make sure to post the links in the show notes. And thank you so much for being here.

Claire Gray: 1:01:29

Thanks Aaron.

Aaron Norris: 1:01:31

Thank you for listening to the Data Driven Real Estate Podcast, you can find show notes and links to some of the resources mentioned in the show at datadrivenrealestate.com. Click that join the community, and you'll be forwarded to the PropertyRadar community where you can ask questions about the current show and even see upcoming guests and ask questions there. We'd love to engage with you in the community. So check it out. Please don't forget to like, favorite, subscribe and share on your favorite platform where you're listening to the show. It helps us out a great deal. Thanks for listening, and we'll see you next week.