The Housing Real Estate Investing Environment is Confused – What to Do?

Questions exist about whether the anemic pace of new house construction is the economy or the new normal. There are macro economic and demographic pressures and trends confusing the situation. There are global and national economic factors creating still greater concern. With all of this, where should housing investment go?

While the direction and strength of housing construction are in question. Other factors are clearer. One, whether housing demand slows, remains slow, or picks up and remains steady for the remainder of the century, what we do know is that the United States is on track to reach 430 million by mid century. This is an increase of 120 million. There can be no question that this factor alone requires increased housing supply and housing demand. At the same time, we know that the population is aging. An aging population implies an steadily increasing amount of independently living people. This also implies increased housing demand. At the same time, the number of children per family is falling as well. Construction costs are rising. Debt availability is constrained and will remain much more constrained. These clues give some direction in an otherwise confused real estate investing environment. Likely safe investment strategy includes:

  • Invest in projects that can support more households in the same footprint. The combination of increased costs, smaller families, and an older citizenry recommends multifamily living and allowances for more independent choices in the same space.
  • Invest in major cities with the heavy knowledge work. The trends underway strongly support increased urbanization. Investing into the trend offers significant opportunity.
  • Current population losses in small towns and cities will continue. Some smaller cities will develop momentum, but a significant portion will “atrophy” as urbanization spreads to cities without the write economic drivers – knowledge work, higher education centers, and commodity driven business. Stay away from markets that may fall in this category.
  • As the population ages and demographically focus reduces the attention on children, schools, and youth activities to older adult social interests. Because of this, housing supportive of these priorities will thrive. Properties near entertainment will do well. Properties with great access to employment and adult education have an advantage. Also, properties offering community activities, fitness, and business centers could do better.

Investors who focus on the cross section of trends will fare well even if population growth slows steadily because these items will create value in the face of this condition.