Supply and Demand Imbalance Highlights the Essential Housing Opportunity

August 8, 2024

For investors, apartments targeted to middle-income renters can provide a less volatile approach to multifamily investing. While renter demand for luxury apartments tends to be more cyclical, we now see a supply and demand imbalance in the essential housing asset class that highlights a current and an upcoming investment opportunity.

Renters across the United States are experiencing pricing pain. Since 2000, growth in rents (+61%) has outpaced growth in wages (+11%), according to data from the U.S. Census Bureau. Over half of all Americans now spend 30% or more of their income on rent. Median income earners are paying as much as 50% of their budget on housing.

Yet there’s a growing shortage of essential housing communities that cater to renters earning between 60% to 140% of an area’s median income. These renters earn too much to qualify for government-subsidized housing and too little to afford high-priced luxury developments. Many Millennials, members of Generation Z, and essential workers are unable to find apartments they can afford in the locations they want.

And we expect this shortage to persist. New apartment community starts began to plummet in 2023 in the face of high interest rates and high construction costs. That means there will be very few deliveries in 2025 and 2026. 

Drawing on its 60+ year history, Grubb Properties has spent the past decade honing its essential housing strategy. In both gateway markets and high-growth cities, we aim to generate benefits for residents, investors, and the broader community alike. We do this primarily through our intentional, attentive, and inspired Link Apartments℠ brand. 

We deploy a refined, repeatable, and efficient process to provide essential housing at scale. We regularly survey our target residents to ensure our communities meet their needs and lifestyle expectations -- including location, access to public transportation, and an attractive suite of amenities -- at a more moderate price than what our competitors offer. 

We identify the locations that fit our strategy and implement cost-efficient design, drawing on our six decades of experience to maximize efficiency and reduce risk. We use methods proven to drive value, including shared parking strategies, and capitalize on available tax incentives and grants.

When it comes to development, we commit to a limited number of highly efficient floor plans and standardized finishes that we can replicate across our properties. This uniformity saves construction costs, limits supply chain challenges, simplifies maintenance, and delivers a resident experience we know will be appreciated.

We also train our construction and design partners to keep our brand consistent across projects and use creative strategies to minimize the time needed to build new construction and manage costs. To provide a locally relevant and unique look to every community, we work with local artists to add creative pieces.

Unlike many of our competitors, we manage every property we own. Our property managers work tirelessly to create the most inviting communities possible. Contrary to industry standards, our property managers are incentivized for top-line revenue growth, not net profit. We believe this leads to satisfied residents who renew leases, and apartment communities that hold value over time.

To further drive resident tenure, we cap rent increases for the residents who live with us for at least five years. We aim to hold our properties for at least 10 years and ensure our brand is well-defined and developed to manage risk for our investors and add value to our properties.

Read more about essential housing here.