The World of Impact Investing is Wide

Here’s Why DLP Focuses on Attainable Housing

Once a rite of passage for young families, the American dream of homeownership has become a privilege, with many industry experts touting housing as a luxury good in the current market. The same has been true for not just months but years, with already sky-high asking prices further exacerbated by rising interest rates and an undersupplied market. In May of this year, records were set (1) for the median home sales price, home asking price, and monthly mortgage payment, even as the average 30-year fixed-rate mortgage decreased from its 2023 highs.

The story for wage growth isn’t a parallel. Over the last four years, the U.S. median income has grown 23%, from $66K to $81K (2); a far cry from the 80% growth in the annual income needed to afford a median-priced home in the U.S. during the same period (2). In 2020, an annual salary of $59K could afford a median-priced home, $7K below the median income at the time (2). In 2024, a record-high annual salary of $106K is needed to afford a median-priced home, $25K over the nation’s current median income (2).?

With stats like that, it’s not surprising that industry leader CBRE has forecasted multifamily rent to be less expensive than a new home mortgage payment through at least the end of 2028.

With homeownership out of reach for a growing population, rental housing is increasingly in demand, whether that be more traditional multifamily developments, increasingly popular build-to-rent communities, or, as we’ve seen recently, RV communities. This demand is evidenced by record-high multifamily absorption (a measure of the rate at which available units are rented) in year-ending Q2 2024 (3), with 390,000 units leased on net during that 12-month period (3). The 8th highest annual absorption number since the year 2000 (3), a report from RealPage Market Analytics stresses that it “may be difficult to overstate” just how impressive that demand is.?

Strong multifamily demand continued in Q3, with 192,649 (4) units absorbed, bringing the YTD total to over 488,000 (4) units and leading RealPage to project that strong multifamily demand will persist into 2025.?

Meeting demand requires supply, and with national multifamily vacancy rates at 94.4% (5) at the end of Q3, the existing supply is close to being maxed out. Coupled with declines in both starts and permitting, DLP believes that supply will continue to be constrained for the next 3-10 years and likely beyond that.?

With any commodity, an imbalance between supply and demand exerts pressure on pricing: the less that’s available, the higher the premium paid to access (or, in this case, rent) that supply. While rent growth has remained modest, it’s still growth. We believe that as long as affordability challenges persist in the housing market, demand for rental housing will continue to grow, and, as previously mentioned, we don’t see supply outpacing demand during the next 3-10 years, ultimately driving continued rent growth in the asset class.?

Stronger rent rolls, driven by higher occupancy rates and rent growth, can contribute to higher net operating income for properties. In the case of properties invested in by DLP Capital sponsored funds, this has the potential to strengthen investment performance and drive returns for investors.?

We make impact investments in attainable rental housing because we believe that it is the asset class with the strongest opportunities to help our investors do well while doing good. But that’s just part of the story.?

We make impact investments in attainable rental housing because we believe everyone deserves a safe and affordable place to call home. Our BHAG (big, hairy, audacious goal) isn’t just to fund the building of 5,000 rental communities; it’s to fund the building of 5,000 Thriving Communities to impact and transform 10 million lives.?

To every investor who has trusted us with their financial legacy on this journey to transform lives through real estate, we sincerely thank you.?

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Sources

1-Redfin, Housing Market Update: Record-High Monthly Payments Chill Spring Selling Season–But Declining Rates Could Boost Activity, May 2024

2-Zillow, Home Buyers Need to Earn $47,000 More Than in 2020, February 2024

3-GlobeSt., Multifamily Absorption Reaches Record High in Q2, July 2024

4-RealPage, Updated RealPage Forecast Indicates Strong Demand, More Mild Rent Growth, October 2024

5-RealPage, Strong Apartment Demand Persists in 3rd Quarter as Supply Hits 50-Year High, October 2024