The demand for rental housing is primarily driven by the younger generation. Historically, 64% of people aged 20 to 34 have opted for rental housing. About 21% of people over the age of 55 have also opted for rentals.
Major players in the apartment REIT space such as Apartment Investment & Management Company (or AIMCO) (AIV), AvalonBay Communities (AVB), Essex Property Trust (ESS), and Camden Property Trust (CPT) also target the younger generation to shore up their occupancy rate. The SPDR Dow Jones REIT ETF (RWR) invests 1.0% of its portfolio in AIMCO.
Demand for rental properties
If the propensity to rent remains, people in the 20–34 age group could add 800,000 to the total rental population over the next ten years. For people over the age of 55, the rental population could witness the addition of 3.8 million people over the next ten years. Demand for rental may even be stronger if the percentage of households choosing to rent continues to increase compared to historical averages.
Diversified renter base
AIMCO has a diversified renter base. The average age of AIMCO’s residents is 36 years. Around 38% of AIMCO’s residents are between the ages of 18 and 30 years, while residents between the ages of 30 and 40 years and over 40 years comprised 31% each.
Higher income levels of residents
The acquisition of new properties and redevelopment of existing properties attract residents with higher income levels. While the median income level of all renters is around $36,000 per year, the level for AIMCO residents is around $84,000.
In addition, the rent-to-income ratio of AIMCO residents is around 23.5%, while for all renters it’s around 30.5%. In short, AIMCO’s residents spend a lower percentage of their income on rent, which allows for more aggressive rent increases in the future without negatively affecting the rental income.
In the next article, we’ll look at AIMCO’s property redevelopment projects.