Why Demand for Rentals Will Increase in 2019
The New Year is almost here, and with a New Year arrives new predictions for the condition of the real estate market. Generally speaking, 2019 will be an excellent year for buying rental properties in Hawaii and the mainland US. Demand for rental properties in Hawaii is expected to continue to increase over the course of the next year as millennial adults choose to opt out of home buying.
The primary drivers of demand for rental properties in Hawaii include changes in the labor model, a growing need for cost-effective housing, and a reduction in homebuilding. Read on to understand how and why these factors will influence the demand for rental properties in Hawaii in 2019.
Changing Models of Labor
Changes in the way that humans work and earn a living will continue to produce changes in the real estate market in 2019. Specifically, continuing changes in the labor model will fuel increasing demand for affordable rental properties in Hawaii.
Thirty years ago, most people subscribed to a uniform, linear model of working and living. After college, people would secure a long-term position at a company, get married, buy a house, and have children—in that order. Indeed, most baby boomers still advise their millennial adult children to save money and work on their credit scores in order to buy a home; buying a home was an absolute, an essential box to check, for members of that generation.
But millennial adults don’t work and live the way that baby boomers once did. More and more millennial adults are attending graduate school, accruing massive loans that render a home purchase infeasible. Many millennial adults are solo entrepreneurs, running their own businesses online and thus operating with a considerable degree of geographical freedom. Millennial adults are also able to telecommute, and they often work jobs that require frequent moves and travel.
In sum, millennial adults aren’t looking to have kids, settle down, and work for the same company for 40 years. The ways they prefer to live and work are not conducive to home buying. Instead, millennial adults are focusing more on careers that permit freedom without demanding permanence. They are foregoing children for travel, job success, and self-fulfillment. Often, they are struggling to simply cover their modest rent and student loans. Thus, as millennial adults continue to enter the market, demand for rentals will continue to increase.
Growing Need for Cost-Effective Housing
Millennial adults are also demanding more cost-effective, affordable housing. Rent has risen astronomically in the past decade. Today, you need to make six figures to live in any major city in the United States. Even the less expensive ones. In San Francisco, it’s not unheard of for young people to shell out $1,800 a month to rent a closet to live in. Yes—a literal closet.
Interestingly, the rising price of rental properties in Hawaii is actually driving further demand for rentals, not curbing it. With such exorbitant rental rates, millennial adults can’t afford to save for a down payment on a home.
The current increase in interest rates (now up to 5% on a 30 year mortgage) is only driving millennial adults further away from purchasing homes. And Zillow projects that rates will increase to a whopping 5.8% by the end of 2019, the highest since the last recession. Higher interest rates and (in spite of falling sales rates) higher selling prices will keep driving people away from homeownership. Thus, demand for rental properties in Hawaii will continue to rise. Further, current renters will accept rent increases and remain in their current residences.
The demand may be especially marked in areas lying just outside of major cities. The present inundation of major city centers with young professionals is one of the major contributors to skyrocketing rent. As inner city apartments become more expensive, low or middle income individuals will likely seek places to rent just outside of the city. That way, they can save on rent and still commute to work.
Reduced Homebuilding
Our unstable sociopolitical climate will give way to an uncertain socioeconomic climate as the 2020 election approaches. A Trump defeat will have dire consequences for the US housing market. With most polling groups listing Trump’s approval rating at around 40%, a defeat is not out of the question. Thus, most individuals are shying away from buying and building homes. In June, new housing construction witnessed a 12% decline; that trend will only intensify in 2019.
Meanwhile, current homeowners are likely to jump ship and sell their homes while they are still listed at a lucrative market value. Those former homeowners are likely to then enter the market for rentals themselves, driving further demand.