Abram Interstate Insurance Services, Inc., CMGA

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Becoming a Renting Society – Insure Apartments Now

Published on February 17, 2015

5145632706_23f00dbd32photo credit: Cali Condoze via photopin (license)

As our society evolves and our economy continues to shift, there’s another shift taking place entirely: The places we live. Studies show that we are moving more and more to a renting society rather than an owning one when it comes to where we live. The National Apartments Association provides a helpful review of these finding explaining why we as a whole are moving more toward the renting side of things as our times shift.

In times of unprecedented growth in rents, value and opportunities, keeping an eye on operating expenses is indeed a priority. The recent perfect storm of limited supply of rental apartments, pent-up demand, declining vacancies, the nation’s shift to a renter-based society and inexpensive and readily available debt has raised the question, “When will the apartment industry’s strong performance end?” As America debates the way to reduce the U6 employment rate (12.2 percent) and create jobs, control rapidly rising federal debt and deficit spending, handle rising consumer costs, adjust to new government regulations and how to address major social issues (e.g., healthcare, immigration, tax reform and entitlements, among others), renting has become an increasingly “preferred” lifestyle option. Uncertainty has shifted focus from preparing for tomorrow to responding to today’s challenges. The apartment industry has been the recipient of benefits of this uncertainty and change… a condition that will likely exist for years to come.

The realization that tomorrow may or may not be like today is increasing demand for rental properties (single-family and apartments). A recent 10-year study of Millennials (2002-2012) revealed that nearly one in four (22.6 percent) 26-year-olds are still living with their parents. Fifty-four percent in the study made less than $25,000 from their employment in 2011, and over 60 percent of those enrolled in college reported that they had taken out student loans.

More women are postponing motherhood. In 1970, 1 percent of first children were born to women over the age of 35. In 2012, that number increased to 15 percent, according to Pew Research Center. This delay in first children means there is likely to be an increase in smaller families, lowering the nation’s fertility rate… which reached an all-time low in 2012. As more women pursue advanced education and careers and focus on financial independence, apartment communities located in or near major employment centers are likely to benefit. In addition, the percentage of mothers who do not work outside the home rose to 29 percent in 2012, up from a modern era low of 23 percent in 1999. The labor force participation rate for women 16 years and older is now 56.9 percent… among the lowest it has been since 1988. Fewer mothers working means the monies available for housing is dependent upon the income of one’s partner. Further, these “opt-out-mothers” cross all education and affluence categories.

Student debt (now nearly $1 trillion) is becoming a growing share of debt for households. Student loan debt, from both Federal and private loans, now represents the biggest aggregate balance among non-mortgage debt categories. Two-thirds of recent graduates have student loan debt.

Fewer jobs, lower average household income, increasing level of debt, changing household formations and age of first-child births will keep these 18 to 34-year-old and more likely 18 to 40-year-old groups as renters for a much longer period of time. Renting as a lifestyle has and will become a reality for many.

Calendar year 2014 will likely go down as the formal beginning of the shift to a renter-based society. Finding jobs is more important than where to live. Achieving financial stability is taking precedent over residential lifestyle choices. Renting is now perceived as a first, not optional, choice.

In 2014, the seasonally-adjusted number of multifamily permits ranged from 350,000 to 365,000. Multifamily starts should remain around 300,000. Completions will hover around the 230,000 to 240,000 level on a seasonally-adjusted basis. The number of permits, starts and completions will exceed 2013 totals. Demand for rental living will remain strong as more Americans are expected to rent in 2014. Investor interest in urban, micro-units and senior-living apartments is expected to increase in 2014.

Rents in 2014 are expected to range from a 3.1 percent to 3.2 percent increase nationally, which will again be higher than the rate of inflation. The demand for rental apartments is directly tied to the number of jobs being created. As the U.S. economy continues its slow recovery, the pent-up demand will continue to increase. Ironically, the rapid rise in apartment rents is in contrast to the much slower increase in median household income (today around $53,000, or about 3.8 percent higher than at the recession low point reached in August 2011).

One of the lessons learned during the 2007 to 2009 recession is that there are no guarantees tomorrow will look like today.

To assure success in 2015 and forward, apartment owners and operators will need to:

1. Continue to make resident satisfaction a priority.
2. Assemble a best-in-class team to assure a competitive
advantage in a highly competitive marketplace. 3. Focus on maximizing investment returns without
sacrificing quality or service.
4. Control operating costs.
5. Perfect one’s brand and market identity.

Despite the halcyon time, the apartment industry today finds itself paying close attention to external metrics and benchmarks in order to “keep score” and determine how one “stacks up” to a peer group of multifamily firms.

Creating value is more than buying right… it comes from deploying a robust operating platform that can manage rents, achieve and maintain high levels of occupancy and provide excellent service and a quality living environment. As renting by choice accelerates in 2015, the need for every owner and operator to focus on the top and bottom line begins with realistic operating costs.

In 2015 and beyond, long-term success in the apartment industry will be derived from a foundation of values, executed by a talented team of professionals with resident-centric focus that exceeds the expectations of all stakeholders. Reliance on accurate data is the foundation for making the right decisions.

As we do make this shift as a society, the rise of construction and ownership of these apartment complexes, as well as the viability of older apartments will continue to rise. If you’re not already in the apartment insurance market, it may be time to consider a new marketing campaign to help you break into it now while it’s on the rise.

As your wholesale insurance broker, we have markets for your to place business for your wholesale apartment insurance needs, even including older apartment buildings. Review the highlights below.

To read the whole report by the NAA click HERE.

Apartments Insurance Product Highlight

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Package: Property and General Liability

Higher Deductibles Available

Optional Coverages

  • Building owners endorsement is available.
  • Blanket limits building and business personal property coverage is available
  • Business income and extra expense
  • Basic/ Broad/ Special Form
  • Replacement cost or ACV
  • Building
  • Contents
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Abram Interstate Insurance Services, Inc. is a California wholesale insurance broker (CMGA) that has licensing and expertise to place business in both admitted and non-admitted markets for personal lines insurance and commercial lines insurance in California and surrounding areas.

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