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Bright Future for the Multifamily Housing Industry:What are the Implications for Tenant Screening Companies?

All of the experts and industry analysts seem to be in agreement: 2015 is predicted to be another year of growth for the apartment business, after a very robust 2014. Let's take a brief glimpse into actual statements made some of those industry experts and then we'll explore some of the implications that I see for tenant screening companies.

Predictions:

  •   MPF Research, an industry-leading market intelligence division of RealPage, Inc. - “This market cycle for the apartment industry looks like a record-setter in terms of both total revenue growth and the duration of the strong increases,” said MPF Research vice president Greg Willett. “The pace of rent growth normally slows after the first couple of years in a cycle, once additional new supply comes on stream, but demand is rising right along with deliveries this time.” Hitting a 14-year high, 246,579 apartments were completed in the nation’s 100 largest metros during 2014. Demand proved slightly stronger at 268,532 units. In turn, occupancy climbed 30 basis points on an annual basis, ending the year at 95.3 percent. The momentum in job creation that emerged during 2014 looks sustainable in 2015, pointing to significant new household formation and sizable apartment demand,” according to Willett. “While occupancy could ease slightly, perhaps 30 to 40 basis points, that really reflects the impact of considerable new product going through the lease-up process. An occupancy reading around the 95 percent mark is still essentially full.” Rent growth of 3.5 to 4 percent appears likely in 2015, according to the MPF Research analysis team.
  •  Money.com - The following excerpt from a December 29, 2014 article sums it up quite nicely: “The rental market will keep burning bright. Next year will see strong rental demand and lots of new supply. The demand will come from young people leaving homes belonging to parents or roommates and renting their own places. Until now, they’ve been slow to leave the nest. But the 2014 job gains for 25-34 year-olds should lead to the rise in household formation we’ve been waiting years for. At the same time, the 2014 apartment construction boom will mean more supply in 2015 since multi-unit buildings take about a year to build. Will rent gains slow? Probably – provided that this new supply keeps up with formation of renter households. This surge of renters will probably cause the homeownership rate to fall. To be sure, the ranks of homeowners will probably rise. But an even larger number of young adults will enter the housing market as renters.”
  •   Forbes.com –In 2015, many 25- 34-year-olds (again, those Millennials) will form new households, but instead of buying they’ll rent,” predicts Trulia’s chief economist, Jed Kolko. In part, this forecast is based on certain demographic factors (marriage, kids, etc.) and in part it’s because many of them will still need to save for a down payment. These factors will continue to push the demand for multi-family housing and rents will keep rising.

 

Implications:

  •    Some CRAs that currently offer only pre-employment screening will seize the opportunity and add tenant screening to their services menu.
  •   All CRAs that offer tenant screening will look for ways to become more efficient and cost-effective as their order volume increases exponentially.
  •   Competition among providers of tenant screening services will be stiff and smart CRAs will seek new solutions to gain a competitive edge.
  •   Especially impacted will be CRAs operating in Renter Hotspots across the country (areas where more people rent than own).

Please be sure to add your comments to the discussion. Do you agree or disagree with the implications I’ve listed above? Are there other possible future effects or results you envision that are not on the list? Most important of all, in light of these predictions for 2015, what will your company be doing?

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