Connecting Rent Growth to Job Growth

Multifamily Insight Names CoreLogic as Preferred Tenant Screening Provider

Woman connecting puzzle pieces

Are you looking for rent growth? Follow the jobs. It seems like such a simple concept. Then we remember that jobs are mobile too and the theory becomes a little more ethereal. Drilling down a layer or two brings to question; what type of jobs?

Historically the “big news items” related to jobs were about manufacturing jobs- a plant opening, a plant closing.  Such an event brought instant price movement to nearby rental assets as people responded to news of the event. Today’s marketplace is much more fluid and dispersed. Here’s a technology related example…

This year Yahoo and Hewlett-Packard have both announced that “work at home” is banned.  Both companies have stated that while they are aware of potential  productivity losses that they expect gains in collaborative synergies.

Yahoo employs over 12,000 people.  More than one-third worked from home. That’s over 4,000 families that may consider a change in housing based on the realities of having a daily commute.  This represents a change in job mobility. Or does it? It’s really a change in “housing mobility” as the jobs have not changed location. It’s about housing mobility because a portion of this workforce may change their housing location now that a daily commute is involved.

In this example there is no change in the number  of  jobs, but  a significant  change in commuter patterns that will affect rent growth in those areas closest to Yahoo job centers.  Consider how this one change in corporate policy will impact rent growth for certain assets!

The objective here  is to spur your thinking with respect to the normalized big announcements about jobs recognizing also that announcements and reality often have lag time and a disparity between the announcement and actual occurrences.

Take for example the announcement that a company is bringing 300 jobs into an area. Further research may reveal that this will occur over three years.  Check back in a year and the reality may be that only 50 jobs have actually materialized so far for a myriad of reasons.

Another bite at the apple requires us to look at full-time versus part-time job creation. An announcement of 500 new “part-time” jobs in reality may represent only 200 FTE (Full Time Equivalent) jobs.

When you think about job growth look at the stability  of the existing employment base first, then consider increases in job growth as a percentage of the existing employment base.  This will bring some realism into you thinking regarding the potential impact of new positions and their effect on rent growth in the local market place.

Mr. Wilhoit is the author of two books: How To Read A Rent Roll: A Guide to Understanding Rental Income and Multifamily Insight Vol 1 – How to Acquire Wealth Through Buying the Right Multifamily Assets in the Right Markets.

For information on two property management audio courses, three books and live weekly leadership academy, visit our PowerHour Books and Courses page at http://powerhour.com/propertymanagement/booksandcourses

Free Webcast October 31, 2013 on Chapter 1 of How to Read a Rent Roll – A Guide to Understanding Rental Income

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About This Blog:

Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. http://www.MultifamilyInsight.com.

Multifamily Insight Names CoreLogic as Preferred Tenant Screening Provider

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