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APARTMENT ARCHITECT

Multifamily Market Leveraging Student Debt

Recently, CBRE released details of a research titled, Student Debt Woes Feed Multifamily Markets; the brief aptly sheds light on how many Americans are hesitant to buy a home and are instead choosing to extend their stay in their rented apartments. However, there was a positive twist to it when considered from a societal perspective.

Jeanette I. Rice, the Head of Multifamily Research for CBRE, suggests that there has been a gradual decline in the number of people seeking out students’ loans and it would frankly make more sense if most young people didn’t have to take out loans to study a course in college or university.

Regardless, even with the dwindling number of students taking out student debts, the ripple effect is bound to remain for a longer time. Rice further maintained that the loan problem isn’t going to disappear anytime soon, because the costs affiliated with acquiring a graduate and undergraduate degrees are on the rise.

IMPACT ON HOME BUYING

The authors who published the brief to highlight how much impact student debts had on home buying maintained that it wasn’t a new phenomenon, even as Rice reckons that the industry is fully aware that these debts are stopping many people from buying homes.

But the statistics reveal a whole lot about the story, Rice maintains, highlighting that in 2019, student debt hit $1.5 trillion – double what it was a decade ago. In 2018, 65 percent of graduates had one form of student debt. Furthermore, the average student debt per loan recipient rose to over $35,000 in 2018. Besides, most potential young home buyers have held off on the idea of buying a home because of student debt.

According to the brief, once you adjust for inflation in 2019, the cost of tuition, board and room has more than tripled since 1978. Also, the costs of higher education is predicted to continue rising above the inflation rate.

An apartment list survey conducted last year revealed that college grad students that had taken out student loan require around 12 years to save up 20 percent for a down payment. This time increases by around three years for those that reside in metropolitan areas with high housing costs such as Austin, San Francisco and Denver.

Rice also mentions that she has carried out extensive research in factors that influence home buying, including patterns, demographics and lifestyle. Adding that student debt is only a part of the larger picture and it is expected that home-buying will be put on hold by at least a few years compared to the previous generation. Rice also suggested that this development would translate into more rented households in the U.S.

DELAYING HOMEOWNERSHIP

The CBRE also highlighted that despite earning significantly higher income thanks to their degrees, Millennials and Generation Z alike, will likely not become homeowners soon after school thanks to their incurred student debts.

National Association of Realtors (NAR) highlights that around a quarter of millennials opine that coming up with the down payment was the most challenging aspect of buying a home. Also, young homebuyers cite that their incurred debt is the primary reason why they couldn’t save up for the down payments. NAR also reported that High debt-to-income ratio is a common reason why potential homebuyers are refused a mortgage.

Due to lower inventories of lower-priced homes and rising home prices coupled with high student debt, most Millennials will be unable to buy their own homes anytime soon. Conversely, the inability for homebuyers to purchase homes is an advantage for the multifamily housing industry, which – due to increased demands – have since experienced steady growth over the past decade.

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