While a chain of six solid years of increasing rental property construction seemed to indicate a cooling-off period at hand, an even larger surge is already well underway. In fact, expert observers believe that this unprecedented boom is getting new life, as demand in leading cities, as well as contingent suburbs, seems to be increasing faster than originally expected.
Over the next three years, U.S. developers are expected to build almost one million apartments. This is more than 900,000 constructed over the past three years, observers indicate. The 328,000 units reached in 2014 was the most in 30 years, according to an analysis by the U.S. Census Bureau.
Obviously, what has gained investment support for rentals has been the constant rental increase available, especially in such leading cities as New York, Los Angeles and Chicago, as well as Miami, Houston and San Francisco.
Average rentals nationwide rose 4.6% in 2015, the biggest yearly gain since the recession. Since 2010, rents, in general, have increased by 20%. Most expert observers expect 2016 to be no exception to this trend. The average monthly U.S. apartment rent now stands at nearly $1,180, up from about $1,125 just a year ago.
From a revenue point of view, apartment properties generated a record $138.7 billion in 2015, just over 30% from a year earlier, according to JLL, a commercial real estate services firm. In 2015, 4,915 multifamily projects were sold, up from 4,570 in 2014.
But worries are beginning to set in as that new construction has zeroed in at the top 20% of the market. To prove the point, 82% of the units built from 2012 to 2014 in 54 major metropolitan areas have been classified as luxury developments.
While the vacancy rate in most of these buildings has been reduced to a minimum, especially in urban markets, there is concern that future overbuilding may become too costly. This is true if these rental building openings are made available for a broader spectrum of applicants.
But, despite the U.S. population growing much faster than expected by the U.S. Census Bureau at the beginning of the current millennium, and while Generation Xers are continuing to live with parents and relations, it’s expected that circumstances generally will continue to make rentals and long-term leasing attractive in the current socio/economic labor markets, with wages stagnating in relation to current living standards.
Treasury debt to slow growth
While the current U.S. Treasury budget agreement guaranteed the financial excesses needed to fund the unvarnished government agencies’ status quo, it also assured the path to a $20 trillion Treasury debt long before 2020.
While U.S. House Speaker Paul Ryan’s directed compromise avoided a major government shutdown and further political party sequestration arguments for the rest of the fiscal year ending Oct. 1, which forced President Obama to lift the lid off the 1974 Nixon oil embargo, it sets up America’s future economy for an unprecedented cost factor. This will squeeze out badly needed expenditures for military preparedness, infrastructural upgrading and support for independent business growth opportunities through an updated, balanced federal tax system.
Simple mathematics make clear the U.S. Treasury debt service will become so ponderous as to make this expenditure large enough to compete with U.S. defense sector funding as the No. 1 government expenditure in the foreseeable future. Up to this point, the United States has been able to avoid overwhelming debt service due to the following factors:
- The low interest rates needed to successfully float and service the nation’s steady debt increase have hovered in the low single digits. But this trend is sure to increase in the foreseeable future.
- It’s frightening to imagine the amount forked over to U.S. Treasury debt holders, at the double-digit interest rates of the Carter administration (1977-1981), could prevail on the forthcoming debt facing the country during the initial term of the next president.
Back in the Carter administration, the debt had not even reached $5 trillion. That number was doubled, prior to the turn of the new millennium. The $10 trillion debt level was reached before two-term President George W. Bush left office in January 2009.
While the succeeding Obama presidency will leave us with a near $19 trillion debt, such interest service expenditures have had the benefit of a long stretch of unusually low interest rates, with an average payment of low single-digit payouts to keep debt service within rational bounds.
However, this sanguine period of funding such massive debt increases is on the verge of ending. Despite a less than dynamic economic growth in the years ahead, it’s a near certainty the forthcoming debt could face an average service payout exceeding that of all other federal government segment payouts. And no letup in the 100% repayment record of the U.S. Treasury could ever be contemplated, since the sterling worldwide credit reputation of foreign government and private U.S. debt support exceeds one-third of the total debt owned by foreign governments and private interests.
Although this guarantee of investment security provides the U.S. government debt with deserved payback integrity, it also increasingly crowds out government expenditures for sequestration, covering both military and private sector support.
The heavy burden of decision making, including a long overdue renovation of the U.S. tax code, last updated in the mid-1980s, will come before America’s legislators before the bell tolling the treasury debt has been reached. This comes at a time when national security, economic growth and further record deficits simultaneously are lurking in the background.
Technology vs. trade jobs
Although the mainstream media extols the virtues of a low 5% unemployment rate and increasing numbers of people hired since the official end of the Great Recession, such information emanating from the U.S. labor and commerce departments could be misleading.
The use of part-time workers, obviating full-time employees’ fringe benefits, and an increasing number of workers looking for jobs while receiving support from federal and state benefits, gives way to “labor force participation.” This number constitutes the full-time working capability that comprises an ever-growing number of “full-time aspirants.”
America’s technological wizardry in transportation, energy implementation, health care, etc., is incessantly reducing the number of traditional hands-on employees needed in America’s rapidly changing workforce.
Simultaneously, the need for such craft jobs such as plumbers, mechanics, painters, latherers and others desperately needed for new construction are increasingly unavailable due to the closing of technical schools that once flourished in all regions of this nation.
Although no solution to these dire circumstances is now being offered, the only way out — now practiced by federal, state, regional and municipal governments — are “sustainability” monetary supplements to those either fully or partially unemployed to make up for the living standards previously provided by full-time work.
Even though no perfect solution will ever be implemented to overcome this increasingly tangible problem, a sustainable admission and confrontation of this growing concern by the government would provide a strong start in resolving this expanding problem, if only partially.
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