A Unique Market Segment

On today’s show we’re talking about one of the drivers for new housing.

I was speaking with an appraiser this week. That conversation led to an insight that you will rarely stumble across in the news. It seems that 2020 has been a difficult year in more ways than one.

We know that it has been difficult for the healthcare sector. We also know that 2020 has been difficult economically. We’ve heard that 2020 has been difficult from a mental health perspective. My wife runs a clinical family therapy practice with a number of practitioners in her office. I can tell you that most of the therapists have a pretty full case load. 2020 has also been difficult on relationships.

Contrary to popular urban legends, we’ve seen consumption of alcohol actually decrease by 8% compared with 2019.

Many couples are spending extended periods of time together in tight quarters, with no breaks from each other. The appraisers have seen a massive increase in volume for appraisals for homes that are not actually being sold. These are cases where a couple is splitting up and the separation process requires a valuation for the matrimonial home. Some of these houses will end up on the market for sale, and some will not. But division of households for divorce is increasing demand for rental housing. There may not be a large supply of rental housing in some areas.

Bedroom communities are often designed around residential subdivisions of single family homes. You don’t typically find rental housing in these same neighborhoods. In some cases, a member of a couple is forced to find housing many miles from the original family home. This is often in a different school district making it complicated for families looking to minimize disruption to children who might be at school. When a family separates, there is often a need for a larger rental property so that each child has a bedroom even though they might occupy that bedroom only part time. If no children are involved, then the person moving out is probably looking for a 1 bedroom apartment.

I’ve recently seen new construction rental buildings being built in areas that traditionally I would have considered would not be candidates for rental housing. They’re far from public transit. They’re deep in a residential area. I would have predicted that those buildings would have performed poorly in those locations. Fast forward a year later and those buildings are full and renting at strong rental rates.

What’s the reason?

You guessed it. Families that have split need a second rental residence nearby. There is a natural seasonal cycle for housing. We know from past history that the busiest moving days of the year are July 1 and August 1. You would not expect people to be moving in February. But some do. It’s often because a couple is splitting apart.

If you want to get a unique insight into what’s happening in your local market, have a conversation with an appraiser and ask them about the valuation work they’re doing for properties that are not selling. These properties are not going to be listed for sale anytime soon.

We’re going into a second wave of the pandemic right now. There will be healthcare stress, economic stress, and yes marital stress. If you have a product that meets the needs of this segment of the market, you can market to that specific client. The needs of that client might be different than just your average tenant. You could specify in your rental listing, for example,  which school bus routes are near your property.