Greg Willett, chief economist at LeaseLock, remains bullish on the multifamily industry even amid a challenging environment.
“It is still a very attractive industry in the big picture, and I think the expectation over the next couple of years is performance is going to gain some momentum despite the headwinds in front of us are a little stronger than we thought they would be heading into the year,” Willett says. “The overall fundamentals remain in good shape. We know the delivery numbers are going to come down notably in the next couple of years, which is a good signal for occupancy and rent growth traction.”
Willett, who joined LeaseLock, an insurtech company offering lease insurance for rental housing, in January, has been talking with clients and helping them decipher the economic and multifamily data that’s available.
“There has been disruption of data from both the public and private sources. There’s an evolution of what’s available out there when looking at benchmarking,” he says. “The biggest thing is to understand the methodologies behind how the information is put together and to what degree there’s margin for error there. Think about if something is impacting the data quality now a little differently than it has in the past.”
For example, when looking at the federal employment numbers from the Bureau of Labor Statistics (BLS), it’s necessary to keep in mind how much that gets revised over time. With each revision, you get a number that is a little more precise, he notes.
Willett says it’s important to track the inflation and consumer sentiment numbers because they can indicate how households adjust their spending patterns.
“They are predictive of what sort of momentum or lack of momentum will be in front of us,” he notes.
When it comes to apartment market statistics, he has been paying attention to resident retention rates, which have big implications for pricing power.
“It tells you how nervous or confident consumers are as well as how owners and operators are,” he says. “Retention is sky high by historical standards. [Operators] are holding on to their residents at a much higher rate than they have in the past.”
According to Willett, a couple of factors come into play for lease renewals: One is the performance of the economy and the uncertainty that exists right now. “When you don’t know what comes next, you freeze in place and choose to do nothing,” he says. “When your initial lease comes up, unless there’s a major movement in pricing, you’re likely to stay in place for the product and service level.”
Willett notes demand has been stronger than one might think it should be relative to job and household formation numbers. “You’re not cycling people out the back door to the same degree seen in the past. You also aren’t losing them to home purchases as you have in the past as well.”
He adds it’s also important for owners and operators to pay attention to resident services and work on those relationships, adding that also has been a factor in why resident retention has been turning upward.
However, that’s not to say owners and operators aren’t nervous about demand.
“With the slowdown in what we’re seeing in job numbers, operators are concerned about how much demand we’re going to see for the rest of the year, and they are really chasing that absorption with some rent cuts and concessions,” he notes.
In most high-construction markets, move-in rents have come down a little bit. “That’s the reflection of owners and operators playing the heads-on-beds strategy. Get as full as you can and, if you have to give up a little pricing power, that’s the route you’re going to go. It circles back to the uncertainty of what lies ahead in the immediate economy.”
In his new role, Willett notes he keeps an eye on the consumer side more than he once did. One metric that concerns him is consumer debt, particularly credit card debt and how rapidly that is increasing, which indicates people are relying on credit cards for day-to-day living expenses. At the same time, credit card delinquencies have ticked up.
“There is a certain block of renters out there who are experiencing some meaningful financial stress, and that’s getting more pronounced,” he says. “This has implications for future overall demands and how [renters] are going to prioritize their spending. It’s a topic we’re going to be talking about throughout the near term quite a bit.”
Willett also is closely watching the regulatory environment.
“Any time I’m looking at performance data, I’m always thinking to what degree is regulation beginning to pop up and affect these results. It’s not just rent control, it can be things like resident background screenings, eviction policies, the cleanup of rent rolls in a given location. Regulation comes into the conversation more and more,” he says.
One of the under-the-radar topics that came up during one-on-one conversations with clients over the summer is immigration policy and how that is impacting demand and the ability to staff communities.
“If the BLS calculations are correct, this is a data point with a lot of margin for error, it suggests the number of foreign-born workers have dropped this year 1 million to 1.5 million—that removes a lot of people from our labor force, and it has an impact on housing.”
He adds that as he talks to developers, he hears about the inconsistency in the ability subcontractors have to maintain a full crew. On the operations side, it is hitting vendors that provide landscaping, cleaning, and other services.
“There are a lot of operators out there who are experiencing ICE raids on their properties, and they point out if ICE shows up and removes one household, you get additional households turning in their keys and saying they are leaving. It’s going to bubble up and become a bigger conversation as we move ahead,” Willett says.