← The Rent Roll with Jay Parsons
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Foreign welcome to episode number 65 of the Rent Roll, your podcast on all things rental housing apartments, single family rentals and build to rent. And happy new year. Happy 2026 everyone. Hope your year is getting off to a good start. Well, we're going to start the Rent Roll off with a bang this year. We got the John Burns joining us as our guest today. The John Burns, as in the founder and CEO of John Burns Research and Consulting. John is the original housing influencer. As many of you know, he's one of the most respected voices in the housing business, someone I deeply respect and admire personally. So I'm absolutely honored to have him on as our guest today. And also it's exciting because today is our predictions episode. Exciting because I know it's a topic of everyone's interest. A little nerve wracking because giving predictions is, is hard. You're putting yourself out there. But we're going to get John's take too on how 2026 might play out both in terms of rental housing as well as for sale housing and the different demographic factors that could play a role in that. All great stuff. And then before we bring in John, I'm going to share with you my own predictions for 2026, 15 of them to be exact, touching on both apartments as well as single family rentals. And before I dive in, I gotta say this, let me put this out there. Predictions are hard. No one is perfect at it. No one has a crystal ball. But we do have leading indicators. We do have some clues, we do have some history to draw from. And thankfully we've got a pretty good track record doing this as well. Not perfect, but we've done okay. Our Previous episode, episode 64 if you missed that, we rolled back the tape on our predictions for 2025. We saw how we did. We graded ourselves and we got seven and a half or so out of ten. Not bad. But hopefully we can do a little better here in 2026 and up. And we've upped it up to, we've upped it to, to 15 predictions as well. So we're gonna have some fun today doing that before we dive in. Want to give a quick shout out to our headline sponsors. First, a big thank you to to jpi, leading apartment developer with a stated purpose to transform building, enhance communities and improve lives. Check them out jpi.com Also big thank you to Madera Residential, a leading apartment owner and operator based in Texas expanding into the Southeast. Check them out@madera residential.com all right, so as always, kick it off with a little section we call. Here's a chart. And this segment today is me presented by Landing, our newest sponsor. And it's a full service furnished housing partner helping operators drive incremental noi. Simply landing turns vacant units into revenue. Learn more@hello landing.com partner and by the way, please get that slash partner in there. That way they know that they're getting some rent and roll traffic their way also. Goodbye there, vacancy. Hello, Landing. All right, so usually for this section I talk through some charts, but this time It's a list 15 predictions for apartments and single family rentals in 2026. And I'm going to spend more time on the first 10 and then we're going to breeze through the last five pretty quickly for the sake of time. But I think you'll find the overall theme that I'm sharing with you for 2026 is one of measured optimism, certainly some cautionary things too. And we're going to see that starting off with number one, number one, gain to lease and inverted rent rolls. We will be bigger themes in 2026.
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We're going to spend a little more time on this one than the rest because, well, first of all, it's the biggest potential shift from not only this past cycle, but really the past 15 years. And, and second of all, because of that, it could be a very disruptive to the apartment market in particular. And third, it's a nuanced and interesting topic and that's the kind of thing we love here on the rent roll nuance. Right. Gain to lease, inverted rent rolls. You know, these are terms that we really haven't talked about for a long time go since the, the great financial crisis. We've really just started to see some of it in the second half of the year and very heavily supplied markets like Austin and Denver and Phoenix. I suspect we're going to hear a lot more about it in 2026. It'll be a much bigger topic that's being discussed among operators, conversation between property managers and their owners and certainly of a whole industry of property management. Property managers and asset managers really haven't, haven't had to deal with this before in their careers. All right, so before we get into this, what are we talking about here? And if you're not up the lingo, that's okay. We're going to bring you into the club. Now, everybody has slightly different definitions, but high level, this is what we're talking about. When we're talking about gain to lease or an inverted rent roll. There's some nuances between the two, but basically it means this. Your advertised rents or your new leases are cheaper than what your current in place renters are paying. Or put another way, your current renters might be paying more than what you'd charge someone new coming in the front door looking at the exact same, same type of unit. And then you're maybe even sending out renewal offer letters at rents more expensive than what you'd offer to a prospective new lease renter. And that's both unusual and problematic for apartment owners and managers. And so, okay, so how do we get here? So let's rewind a little bit. If you go back to 2021, 2022, that's when new lease rents were rising faster than any point in decades. And they're also rising faster than what we're seeing for renewal rents. New leases climbing a lot faster than renewals. That gap built up what we call loss to lease, meaning that current renters are paying much lower rents than a new renter coming in the front door. And so again, that builds up a big cushion between what current renters are paying versus what a new renter would pay to come in. So then in 2023, 24, 25, new lease rent growth sold way down and even fell in a lot of markets. But renewals in most markets still steadily increased 2, 3, 4, 5%. And that was able to happen because there was that big cushion that people sometimes ask, well, how are renewals growing more than new leases? Well, it's because that nominal value of the renewal is still likely below the new advertised lease, new lease rent. And it took a couple of years to get renewals caught up with, with new leases. But now we're getting to a point where in a lot of markets where that gap, that big loss to lease cushion, it's been erased and some already in a gain to lease scenario. Now here's the thing. This is a big thing for 2026, huge thing. Okay, if big, if, if new lease rents re accelerate in the spring leasing season, then we're going to rebuild some wiggle room here. And you can see renewals continue to increase as well. You know, steadily, you know, kind of normalized increases 2, 3, 4 or 5% in that scenario, it's, I don't be overdramatic, but it's pretty much crisis averted on the gain to lease inverted rent and roll scenario. But that's not a sure thing because obviously we still have elevated vacancies. We still have a lot of vacant product out there to absorb from all those completions in 24 and 25 through these prolonged lease ups putting downward pressure on rents across the market, even in the B and C space. And so plus there's obviously still a lot of uncertainty out there as well, impacting demand potentially. Now, if new lease rents do not re. Accelerate in the spring leasing season, that's a problem for property owners and managers for a couple of reasons. First and foremost, it means your rent roll, your revenue stream isn't growing, even though your costs are probably growing now. I think, you know, OPEX is up your operating expenses. I think we've started to see that that growth has been more normalized. We're not necessarily in these crazy increases anymore, but still you're going to have your costs increasing. At the same time, you could potentially have your rent roll contracting. That's tough. Okay. Now secondly, the second big issue, and this is a big one. As an operator, you now have to pick between two unattractive options in your renewal pricing strategy. Number one, do you cut your renewal rents to market either through base rent cuts or, and, or through renewal concessions and then push to keep unattract and then push to keep your retention high? Again, that's not an attractive option. Or number two, do you push a normal renewal increase of, or even a modest renewal increase, let's say of 1, 2, 3%, and cross your fingers and hope your renters don't compare their rents to the rents you're advertising on your website because you know, nobody wants to pay above market even, even if they can afford it. It's just, it's just not, that's just unattractive scenario all around. And I, sometimes I hear apartment professionals, you know, some of them will say, well, no one's going to move out because of a 2 or 3% increase. And maybe so. And that's probably true of some folks, especially if they don't check online to see what a new renter would pay. But I'd also argue that for a lot of renters, you're probably thinking about it the wrong way. It's not the 2 or 3% increase that's the potential deal killer. It's not what they're paying now versus what you're asking them to pay to renew. It's really more about what they'd pay to renew versus what they'd pay to rent a comparable unit and maybe at a neighboring property or maybe even another unit in the same building where they live today if that difference gets, you know, I don't know what the number is.5 plus percent upper single digits. Maybe it becomes more enticing to move out. We've all heard those stories of property managers unwilling to give renters the same deals. Current renters unwilling to give current renters the same deals that are being advertised online. And so instead of the renter. I'm sorry, so instead the renter chooses to just move out of one unit and maybe even rent another unit in the same building for cheaper. And that's a really bad scenario for the property owner because now you have more turn costs to take on another unit. You have to turn and instead, you know, you have that renter who you could have renewed it maybe at a similar rate. Now they're paying cheaper for a different unit. That old unit's now vacant and you have to take all the vacancy, loss and turn costs associated with that. And then when you finally do lease that older unit or that previous that unit they're previously in, you're probably realistically going to get a rent that's much lower than what or at least somewhat lower than what you were offering that renter to renew in the same unit. And so that's probably not a wise strategy unless you're just trying to fool the property owner or your investors into thinking you're still generating positive renewal tradeout. But you know that's coming at the expense of a weaker bottom line net operating income. So it's just lipstick on a pig, as they say. So never want to focus too much on one individual KPI like renewal trade out. You know, we really want to think about the impact to the bottom line. So we'll see how this one plays out. Again, the big if scenario is what happens with new leases in the first in the spring leasing season. That's going to impact how big of a deal gain to lease inverted rent rolls are in 2026. All right, so we spent a lot of time at number one. Let's pick up the pace as we move along here. Second one. This is pretty much an easy one. Number two, apartment and BTR supply will drop off precipitously in 2026. Now remember, forecasting is an exact science, but tell people it's all the time supply is the easiest variable to forecast. It just starts being pushed forward. Right. So we should see apartment supply total around 300,000 units in 26. That'll be the lowest in about a decade. Build to rent supply is going to drop off too. John Burns data shows less than 25,000 units completing in 26. That would be the lowest since 2020. Before the big BTR boom began and that big drop off in supply for apartments in BTR is pretty much universal with, with just very few exceptions like the, the West Valley of Phoenix. But we're seeing that in markets all across the country and that's going to be the big story. But I also want to remind people this, a little bit of, kind of a cautionary reminder. We still have a lot of newly built properties that on paper completed in 2425, but they're still working through a prolonged lease up process, maybe experiencing that year two hangover where they're dealing with move outs of their first renters. At the same time, they're still trying to get to stabilized occupancy. And hence, you know, that could drive some of the gain to lease issues that we've talked about. Still having that previous wave of supply still going through lease up, still as elevated vacancies. And so you can't think about supply as only the units completing in 2026 calendar year. You got to think about that previous wave as well, still going through lease up again. That's going to remain a big part of the narrative, at least for 1H26. All right, number three, this is an interesting one. Absorption will drop off and yet vacancy could still improve. All right, so here's my hot take. Even if the economy finds its footing, job market improves. Better job growth than we've seen these last few months, apartment absorption still probably going to drop off from the record levels we've seen in 24 and 25. Why is that? Because supply is also dropping off precipitously. As we just talked about, absorption is correlated with supply. Absorption is simply the change in the number of occupied apartment units or basically renter household formation. And you could only absorb what is available. So there's a natural cap on absorption capacity. And all those new units as they gradually lease up, there's now less available to absorb. It's reduced absorption capacity. That's why places like New York City and San Francisco, despite being so big, they rarely rank among leaders in absorption simply because there's less supply, less available to absorb. So I'm not going to go too far down the rabbit hole here. But the bottom line is look for absorption to come down. There's, there's no reason to panic if that happens as long as vacancy is still improving. At the same time, how does vacancy improve if absorption is slowing? Well, vacancy can still improve as long as supply drops off in line with or faster than absorption. And that does seem likely to happen barring Some recession scenario. And there's also some methodology issue in how absorption can calculate that gets calculated that could factor into this as well. But let's won't get into all that. So bottom line, again, big reminder, do not panic. If and when absorption numbers drop off in 26 compared to the crazy highs of 24 and 25, those numbers are way high in even if we come all the way down back to pre Covid kind of normal levels, that is not a bad scenario for the US Apart market in fact could be fully expected. Number four, the immigration impact will prove isolated, not systemic across rental housing. Okay, so obviously this is a big variable in demand of course immigration and I'm going to talk with John Bernstein about this topic later and get his take. His team's done some really good, really, really good research on the impact of immigration on housing demand and obviously it's an important issue but it's also when it's become a political hot button and you hear these kind of two extreme takes on both sides here and you know, I find myself somewhere in the middle and hopefully the, you know, more of the, you know, kind of pragmatic realism here. So first and foremost, did the big wave of immigration these past few years, did that impact housing demand numbers? Well obviously yes it did to some degree. We can't just pretend like that didn't happen. People coming into the country have to live somewhere. Right. But on the other hand I think we have to be careful about giving immigration numbers too much credit. There's obviously other factors that drove demand as well. Immigration was not the only driver. Okay, second thing, Reese, immigrants Burns data has some good Burns has some good data on this showing that recent immigrants, their households tend to be twice as large as native born households, more than five occupants per unit compared to two point something for native born households. Okay, so in other words it's not a one for one trade off. You know, less immigration equals one less household. That's not necessarily true. And three, recent immigrants tend to concentrate in certain neighborhoods, certain property types, usually sub institutional rentals. And Burns has some good data on this as well. So what does all this mean for 2026? Well first and foremost, as immigrants come and go from the U.S. potentially less immigration, 2026, the impact to housing is not one for one. Some of these foreign born households I mentioned earlier, there's bigger household sizes. Some of those households could simply get smaller. Secondly, the impact I don't think can be felt equally across all apartments in sfr. You're going to have some properties and some submarkets where it's a major impact and you're going to have some where it's a total non factor. And on net, I don't think it's going to be a big driver in the demand numbers for institutionally owned apartments in sfr. I don't think we'll see a big vacancy spike as a result of this. Of course, you know, there could be exceptions where there are, you know, a, you know, a lot of H1B visa holders and tech jobs. And if there's any impact there, it doesn't look like there will be, but there could be isolated cases where there might be also could be issues where there's reduced number of student visa holders in student markets like we've seen in some parts of Boston. But overall, I think again, the impact is going to be fairly isolated and you'll be able to point to say, hey, it's happening here and here, but you don't want to necessarily draw the conclusion that it's systemic. It's happening everywhere. Now let me just briefly say, I think John Burns has a slightly different take on this topic, so stay tuned for that in a bit. All right, Number five apartment and SFR turnover will maybe stop declining. All right, So I predicted turnover couldn't possibly further decline going in 2024. I was wrong. I said the same going in 2025. I was wrong. So today, call me crazy, but I'm tripling down on my bad call here because corn can't grow to the moon, right? That's my, my friend Rich Hughes always told me. Well, I do think renter turnover is just structurally lower today than it was in the 2020-2010s decade. Excuse me, 2010s pre Covid. So I don't think we're going to see, you know, just mass move outs by any means, but we have to finally see at least a little bit of pickup and turnover at some point, right? So why not 2026? We have a lot of renters who leased units in 25 with generous concessions. Operators are going to want to wean off those concessions at some point. They probably won't be able to just burn them off entirely as they'd like to do. But I think enough try that maybe. And with those gain to lease issues I mentioned earlier, maybe some operators push above market renewals because they don't want to see negative renewal trade out. Maybe that encourages some deal seekers to move out and chase the next deal. So we'll see. I might be wrong about turnover yet again. We'll see. How this plays out. Moving on, number six, cities and states and federal government will do more to try to stimulate housing supply, but with mixed success. All right, so let's talk policy for a moment here. I've been, I've been very encouraged by the success of the EMB movement and notching winds in both red states and blue states alike to get more pro supply solutions passed. Policymakers we've seen across the aisle have been more educated on this issue these last couple of years. And so I do think that's going to amount to more pro supply housing wins in 2026 across all levels of government in different places to different degrees. We may even see an executive order here in coming weeks announcing some incremental steps to make it easier or more financially viable to build more housing both for sale and for rent. Maybe even see some other legislation through Congress too. So we'll see how this plays out. But I think 2026 is going to be a year of some pro housing wins. But just because it takes time to get these deals done is still complicated. I don't think it amounts to massive immediate wins. But. And there's going to be some that don't go far enough to really move the needle. I think that could happen in places like New York City. But overall I think we're going to see some efforts to really, really do that. Number seven, new construction will gradually gain favor for capital but may not translate to an increase in starts yet. Okay, so this relates to the pro supply story a little bit. A couple of things that could trigger a pickup in development capital. Number one, that big wave of completions from 2425, they work their way through lease up, they show signs of stabilizing. That's a big thing. And that's going to. That can give development capital much needed clarity around where rents are pro forma rents. Where, where's that rent really going to be? That's huge for potential new projects. You got to have some clarity on the rents. You know that's not been particularly clear of late given all the concessionary environment. Number two, a lot of dry powder out there is chasing are chasing deals for newer vintage apartments and BTR likely more capital than there is a supply of high quality deals to be had in today's market. And so I think that pushes some of that capital back in to new construction. Again, not, not. I'm not thinking about it's not going to be some massive tidal wave back in the development like we saw in 21:22, but I do think it's a gradual shift back in development. Maybe it doesn't show up in 2026 start numbers. If it does be later in the year, I actually, actually think starts will likely remain somewhere in shouting distance of a 2025 numbers. But and I think they're going to skew. What starts we do get are going to skew heavily toward larger top 25 developers, a better access to capital, more efficiencies of scale. So again, I don't think it's the beginning of a big boom again, but I do think we could see an incremental pickup in development deals. Number eight, apartment growth could exceed the consensus forecast of 2%. All right, so let's go on a limb out on a limb a little bit here. Obviously the rent numbers for second half of 2025 came in weaker than expected. That that led a lot of forecasters to ratchet back their expectations for 2026. And that may or may not prove smart. But I'm wondering if that's not too much of what forecasters call recency bias, which basically means we let the most recent period cloud our view of the near future. How we feel about today tends to shape how we feel about tomorrow. And I look at it this way. If the economy really is weakening, as some people argue it is, and maybe we have, if we have a real recession and we're probably not going to see any rent growth at all, right? I mean, that's not a good scenario. But if the economy does find its footing and the job market stabilizes, I think you could see rent growth top 2% by the end of 2026. And there's three reasons I say that. Number one, even if absorption reverts back to pre Covid levels, which would be a big drop off, that'd still be enough to top supply delivery in 26. And that would mean improving vacancy levels and you know, rental housing, it's a momentum business. So if vacancy is improving as supply is declining, I think you'll see operators that they've been getting hit for three years. In some cases they're going to be itching to pull back on concessions, start to push rents a bit, not necessarily a ton, but a bit. And so they're going to try to get rents back up the budget or pro forma second point concession burn off. Concessions stay at the highest point since the since the recovery coming out of the gfc. If vacancy does indeed improve, we're going to see some concession burn off. I don't think all these concessions just burn off in one leasing cycle. You know, I generally think concessions are not the best strategy, but even if you burn some of those concessions off, that translates to effective rent growth, which is what we're measuring here. We talk about rent change. So if you remove a discount of one month free at a property, remember that's a, that's an equivalent effective rent increase of 8 something 8/% right now overall. I'm not saying we're anywhere near 8%, but if you have enough properties pulling back on some of those, you're going to move the needle a little bit. And then the third thing, here's a bit of a wild card factor, all in pricing. We talked about this on a podcast a few weeks ago. The FTC is warning letter department and SFR operators around disclosing mandatory fees more prominently and rolling that in to the base rent when you advertise it online. Well, I do think as more operators adopt all in pricing, that's going to impact these rent growth calculations a bit because it's really hard to adjust. The data providers are going to have a very difficult time just stripping out that, that, that impact of all in pricing as mandatory fees roll into the base rent. So that could boost the appearance of measurable rent growth as well. So anyway, you're seeing a lot of takes right now of rent growth being one the less than 2%. Maybe they'll be right. But I'm going to take the over. And last thing I want to say here on this topic, don't be surprised to see some higher supply Sunbelt markets regain spots on the rent growth leaderboard in 2026. Because once some of those markets turn, it's not going to surprise me to see a quick snapback in rents like we saw previously in some of these coastal markets that got hit before that. Number nine, the gap will narrow between SFR and apartment rents in 2026. Okay, so today the premium to rent a single family rental home versus an apartment is about 26%, about 25 and a half percent or so. And that compares to the low 20% range prior to Covid. SFR has obviously outperformed, especially over these last three years. But I think that gap could narrow here in 2026 with apartment supply decreasing and the potential for more shadow market supply entering the SFR market. Now, I know some people say, Jay, well hey, homeownership costs are prohibitive. That'll put more people renting sfr. And that could be true. That's probably true. But that doesn't necessarily mean there'll be more SFR rent Growth. In fact, look at, look back to the early 2010s, homeownership went down, and yet there was hardly any SFR rent growth at all. Even as the job market improved, the economy gained steam. Apartment rents were growing. And I tell people this all the time, I say it again, SFR rents always grow more when homes are selling and home prices are appreciating. And when people leave to buy homes, it's a rising tide to boost all ships. People go out and spend money. Household formation improves and you're losing more people to home purchase, but you're backfilling those units faster, usually and often at a higher rent. Now, again, I think SFR is going to do fine 2026, but it wouldn't surprise me to see we finally see a year where apartments outperform SFR on rents. All right, so we'll see how that plays out. But there you go in our 10th number 10 small SFR owners could regain some market share in 2026. All right, so this is another interesting topic and one not a lot of people are talking about. And I want to start with some current stats on the SFR market. Today. Large investors with at least a thousand homes in their portfolio, they represent about 3% of the SFR market. That means smaller investors are about, are about the other 97%. And more narrowly, those with fewer than 10 homes are about 77% market share. That same group with fewer than 10 homes, they represent about one in five home sales, according to John Burns data. One in five or 20%. And that's actually up from 17% in 2021. So mom pops are taking more market share already. And I think that trend could continue in 2026 unless the homeownership market, the home buyer market, materially changes. So also, by the way, Those with under 100 homes is kind of sub institutional, but you know, kind of, you know, local groups with pool dealers, some capital, they're also gaining some market share. But the big guys with thousand plus homes, they're, they're, they're, they're down, right? They were getting 3% of homes at the peak. They're now buying about 0.5% of homes, according to the Burns data. So what's going on? Well, we can spend a whole data, sorry, a whole episode on this. But it boils down to this. Institutional investors are much more worried about a cap rate than a smaller mom and pop investor. Pricing is too high for the rents that big SFR operators can get. So a lot of the big guys been focused more on new construction and BTR than on buying existing homes from the mls. They're just finding better value there. And I'm not sure, I'm not sure that changes anytime soon. Smaller SFR investors, you know, they're not necessarily building. They might buy occasionally from a, from a home builder, but they're more likely still buying off the mls. They're not. Their buy box is bigger, so they're maybe looking at homes in a condition or a location where the bear guys wouldn't look. And so maybe they're finding better value that way. And plus, we continue to hear reports of accidental landlords coming back into the market. Those would be sellers who are holding onto their old homes as a rental instead of selling. And that puts more shadow market inventory into the market in some places. And we could see more of that in 26, unless the home buyer market improves enough to encourage more of those folks to sell instead of trying their hand at landlording. So keep an eye on that one. But I think that could be interesting. Theme of 26. All right, five more to go. We're gonna make these last five quick for the sake of time here. We're already going a little longer than we'd like to, but this is a big episode prediction of 2026, so we want to find that balance of giving the meat and potatoes but also keep things going a little bit. So five more quick ones. Okay. Number 11, apartment sales will pick up moderately as some investors shift back to equity from debt strategies. All right, I think that one's gonna be a pretty easy one. Apartment sales volumes increased about 9% in 2025. I think we'll see a similar size pick up in 26, barring some type of unexpected wild card event. And that's going to feed into our next two predictions. Number 12, more distress emerges in 26, but remains a small share of the market. All right, so we talked a lot about this in the past in this program. Yes, there's still a lot of distress to work through. More of it will likely come to a head in 2026. A lot of it likely. Older vintage product doesn't match the buy box for a lot of today's capital out there. That makes these exits a little bit messier to work through. That's going to create some buzz. I'll create some headlines, some news. But it's still a single digit share of the overall debt market in the US So it's unlikely to really move the needle on overall values and cap rates, et cetera. By the way, hoping to get the CEO of a major debt fund on this program on the near in the near future. So stay tuned for a deeper dive topic on this. But also one more quick note here is we could see more older properties and entering the sales market in 26. That'll create more balance again and the composition of what trades. That could create some noise in the headline metrics around overall cap rates, prices per unit. But I suspect that the sub story here, the, the subplot will be minimal impact to the class A market. Maybe we continue to see cap rate compression in that part of the market because that's just a different market than what we see in the potential distress pool. And that ties right at number 13. Value add definitions continue to narrow and B's separate from C's. All right, so I think we'll see more investors talking about value add strategy in 26. But value add of 2026 is probably not going to look like value add of 21 and 22. A lot of that capital today that's talking about value add. They're likely thinking about deals that are 20 or 30 years old, maybe going back to the 90s, but mostly 2000s plus. And they're looking at higher quality submarkets, still a tougher market for older vintage deals and weaker locations. And on a related note, I think we're going to see more separation of class B over class C deals with B's holding up better than C's. Some of you know, I hate the B C designation. There's no such thing as a B c. There's just B's and C's. And I think that distinction becomes more clear in 26. Number 14. BTR developers will start testing new concepts and locations more in 2020. All right, so sometimes people tell me, you know, Jay, you know, BTR is already oversupplied. And I find that funny because we've really only built BTR in a handful of places in Phoenix and then in a handful of submarkets across places like Dallas and Houston and Atlanta. So development tends to be a lot of follow the leader, okay? Follow the comp you build. There's a comp and that concept. But, but the overall concept of BTR is now proven. And where we have built a lot of it, it's been pretty well saturated. And that's, that's created some, some, some lease up challenges, some of those spots. But the concept has proven the concept has worked. And so I think that just pushes development now to, to more to, to locations where you've not already built A lot of btr, which is by the way, most of the country. And so I think we'll see some, some new, new submarkets being tested and maybe even some higher end product being tested in 27. All right, last one, number 15, AI and centralization grow down market in apartments and SFR. All right, so no big surprise here. We're giving our 15th prediction to one operational tech topic. You know, tech adoption tends to start in class A, work its way down. We saw the same thing with smart locks and smart home tech. Now some of that is some, some of these new tools and AI centralization, they've been more proven, more established. We're likely going to see more adoption down market now as well. I think that's a pretty easy one. All right, that wraps up our prediction for 2026. Mark those down. And just like we did this past week, we're going to hold ourselves accountable a year from now reviewing how we did with those predictions. Next up, rental housing trivia. Today's trivia is presented by Foxen, which provides a suite of value add solutions designed to improve operations compliance and property performance. Rethink renters insurance compliance, rent reporting and pet management with Foxen. Check them out@foxen.com that's fo x e-n.com all right, so I mentioned earlier today that the premium to rent an average single family rental home versus an apartment was close to 26%. Right now, 25 and a half percent. And and we get that number by comparing burns data on mid tier sfrs versus real page data on the effective average rent for an apartment. So that leads us to today's trivia question. What was that premium at the end of 2009amidst the great financial crisis and the foreclosure crisis? Okay, so how much more back then did it cost to rent an average single family rental home compared to an apartment end of 2009? I'm giving you four choices. Not going to be too cute with this one. There'll be four big choices, big ranges that you could pick from. Is it was it A, 11%, B 21%, C, 31% or D 41%? All right, so give that some thought and we'll give you the answer in a bit. But first in the news, In the news this week is sponsored, sponsored by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline, your leasing funnel and your comps and tell you exactly where things are breaking down, plus strategies on how to fix it. Listeners of the pod get 50% off. So head to authenticff.com, click on the banner and learn more to claim the offer. All right, this first headline comes from the Wall Street Journal. The data problems in Thursday's inflation report will linger for months. Calculating housing costs presented one of the thorniest challengers challenges and they make up a huge portion of the price index. All right, so I'm not, I'm not going to go too far in the rabbit hole here because we could talk about this one for a long time. And so I'm going to try to really boil this down, keep it very high level. If you've seen headlines like this about the cpi, let me try to break it down and explain why this probably is not as big of a deal as some people and some headlines are making it. Okay, so quick backstory. Due to the government shutdown, the Bureau of Labor Statistics could not collect inflation data in October. It resumed in November. And that seems easy enough, right? For most categories. Cpi, you know, it's obviously not great to have a hole in October, but really doesn't, doesn't really impact November or going forward. But housing, AKA shelter and inflation terminology. Well, shelter uses a weird methodology where the prior months, like October, in this case, they factor into the current months into future months. Calculation of shelter inflation. I'm going to spare all the details behind that. But basically CPI attempts to measure housing costs like a rent roll would, basically the in place rents. So the hole in data collection for October meant that the CPI assumed no housing inflation in October and that created this whirlwind of headlines that you may have seen where you may have ignored. Okay, so I got into a bunch of Twitter debates over the wonky details of this and I'm going to spare you that, spare you all that. But it boils down to this. In my opinion, the narratives are much louder than the actual impact of this October hole. It's just not that big of a deal. But don't take my word for it. Ernie T. Tadeshi. Hope I'm saying his name right. A former chief economist of the White House Council of Economic Advisers. He did some math and he tweeted this out. He said, so year on year, core CPI inflation will be 0.06 to 0.15 percentage points lower for a time. Year on year, core PCI inflation will be 0.03 to 0.06 percentage points lower. All right, so core CPI inflation will be impacted, in his words, by 0.6 to 0.15 percentage points. The overall CPI, CPI inflation would be even less. So we're just not talking about that big of a number. We're talking about basically a rounding error. It's not that big of a deal. It might be more concerning if that hole pushed the trend of shelter costs in a different direction, but it did not. It just mildly accelerates the slowdown of a very lagged metric, shelter inflation. And that metric had already been slowing for two plus years and every housing economist knew it would continue to slow down going forward given this lag methodology. So again, you're going to hear more about this coming months about this issue of the of the October hole. But it's just not that big of a deal. So take it with a grain of salt. All right, next headline comes from the Washington Post. It says it's an editorial board. It's op ed from the editorial board. It says cities keep repeating this failed policy experiment. Rent controls didn't work in St. Paul and they won't work in LA. Alright, so the Washington Post editorial board just came out strongly against rent control. Here's what they wrote. They said capping prices as a textbook policy failure that leaves renters in every community which tries it worse off than they would have been otherwise. Boom. Spot on. Glad to see more momentum in favor of science over rhetoric. Speaking of science over rhetoric, here's a great article from Bloomberg. Luxury Apartments are bringing Rent down in some Big Cities. All right, I talk about this topic a lot. I love to see Bloomberg picking up on it. Great reading. The article generated a ton of buzz on social media over the break. I shared it and got about 2 more than 2000 likes, more than 300 retweets. Love to see that for an important issue like this one where the actual facts are not widely known. So here's what it boils down to. Any people out there, they say well we don't need more luxury apartments, we just need affordable housing. And the truth is this, if you care about affordability, then yes, you absolutely do need so called luxury apartments. And by the way, we all know luxury just means market rate deals actually pencil out right? And the Bloomberg reporters add to the growing body of evidence that when you build so called luxury apartments, even low income renters benefit from the downstream impact. Now this may seem obvious people in the industry, especially if you're operating B and C assets in a high supplied market right now. But it's important because the cynics seem to believe that Wealthier renters come out of nowhere to lease these so called luxury apartments when in reality they're living in lower priced rentals today and they're moving up. So when new housing gets built, they move up, thereby opening up availability for lower and moderate income households. So again, science over rhetoric. Good article from Bloomberg. All right, one more article from Bloomberg as we wrap up the in the news section today, bankrupt New York City rental buildings get $450 million $451 million offer from Summit. All right, so the article tells us that Summit Properties USA has struck a 451, $451 million deal to acquire dozens of New York City apartment buildings put into bankruptcy by Pinnacle Group. The properties house roughly 5, 100 mostly rent stabilized apartment units in Brooklyn, Manhattan, Queens and the Bronx. All right, let's do some quick math. $451 million, 5,100 units, that's about $88,000 per unit. How crazy is that in the nation's largest city, you know, by comparison, the national average price per unit is about $225,000. So I might assume that even the the land alone in New York City might be worth more than these buildings are. And so that discount is likely attributable to the 2019 law in New York that enacted vacancy control on rent control rent stabilized apartments, meaning that rents can no longer rise to market even when vacated and leased to a new tenant. And I would assume the potential buyers, they're just probably drawn to the bargain, pricing the low basis and maybe hope for eventual reform of rent stabilization in New York City. But it's a big bet nonetheless. 451 billion. I'm sorry, $451 million is a lot of money and it's also a very tough comp for current owners of New York City's rent stabilized apartments. Although certainly an imperfect comp to be fair. All right, let's get back to today's trivia question we asked at the end of 2009, how much more did it cost to rent an average single family home compared to an average apartment? Was it 11%, 21%, 31% or 41%? And the correct answer is D 41%. Wild. Right. Well, how did that happen? It's a pretty interesting story. Real quick. During the home sale boom the 2000s, SFR saw a lot more rent growth than apartments did. Because remember I mentioned this earlier, the correlation here, SFR rents tend to grow more when homes are selling. Home prices are growing. We saw that during the bubble era too. So by 2008, SFR rent started to flatten while apartments were falling. And then by the end of 2009, that gap was 41%. And then the tables turned apart. Rents rebounded. SFR rents did not, in part due to a lot of supply being added into the SFR market as a result of the foreclosure crisis. And that premium dropped off fast. By about 2014, that was back down to the mid 20% range, which is closer to where we are today. All right, next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelleleasing.com and our guest today needs no introduction. To borrow from the famous late night opening here, our guest today needs no introduction. He is John Burns, the founder and CEO of John Burns Research and Consulting. Here's my conversation with John. Hi, welcome to the interview portion of today's podcast. And I am honored to welcome in John Burns of the John Burns. So, John, thank you so much for being here.
- [43:48]
B
Well, I, I made it on the Jay Parsons podcast, so I'm pretty excited about that.
- [43:54]
A
Well, I have a long way to go to catch up to you. So speaking of which, tell us about, you know, some people obviously know your story. Maybe for those who don't, tell us about the origins of your career in real estate and the founding of, of the company that bears your name.
- [44:11]
B
I'll say how old I am. So I did 10 years with KPMG, Pete Marwick, when it was called Pete Marwick, two years as a CPA and eight years in consulting. They bought a company called the Goodkin Group and then started a real estate consulting practice. So I ended up in real estate consulting for eight years when the Japanese were buying all the office buildings and golf courses in America. And then the SNL crisis hit and Morgan Stanley and Starwood and all these companies made a lot of money buying loans at a discount. That was a, that was a great education. Then I went to a regional firm for a couple years because I was traveling too much and the owner of the regional company lost the company to his private equity. I could see the writing on the wall. And I asked my wife, are you okay if I go out on my own? Because I learned earlier from some, a group I was in that a lot of entrepreneurs end up getting divorced because it's such hard work and she said, I'll support you, which she has till this day. And here we are, 20 this. We're starting year 25 next year.
- [45:17]
A
Amazing. That's amazing. Well, congratulations on all the success. And tell us about the company today, a little about your team, the scope of what you all do for those who aren't familiar with your company.
- [45:27]
B
Yeah, so we've got a consulting business and a research business. I spend more time on the research, so I'm sure we'll talk about that. But I've got some great consulting leaders that have been with me 15 to 20 years. Leslie Deutsch in Florida, Don Walker and Ken Perlman in San Diego, Dean Worley in Northern California. And so we've got experienced consultants all over the country where there's a lot of construction and then research. I learned a lot when I was at KPMG that the commercial real estate industry, including the apartment industry, is very sophisticated, but the home builders were not. So I pivoted to doing good research for the home builders. And that's what we've been doing on research now. And it's grown into rental companies and building product companies and private equity and hedge funds. It's gotten pretty diverse within housing, and I'm pretty proud of that.
- [46:22]
A
As you should be. I tell people all the time there's been this data proliferation over the last 10, 15, 20 years, but I think, unfortunately, the standards of know what some random website could push out there, very low. But, you know, your company is one that obviously I cite often as people on the podcast know, and. And I think is. Is one of the gold standards out there. So you've done a good job building that up.
- [46:44]
B
Jay, When I started the company, there was no data, and our Metro reports were four pages long.
- [46:50]
A
Wow.
- [46:51]
B
And. And now that you're right, it's just too much data. And our clients, like, would you sift through it all for me and buy before it makes sense of for me? So our value add has changed.
- [47:00]
A
Yeah, but there's so much. When I say data proliferation, I mean, like, I think there's a lot of junk data from different providers. I mean, y' all have 100 pages of gold. In my mind, I mean, I'm a data nerd, so.
- [47:10]
B
Well, it better be gold. But I gotta tell you, there's more than 100 data sources we're looking at because we keep a list of them, and that haven't met our criteria too. So you're right, there's a lot of junk. We're helping some of those groups get better so they turn good and we can use them and then AI man, that's going to completely change the world here over the next few years, which is going to be scary and exciting at the same time.
- [47:32]
A
Yeah. And I won't be too found that I would hold, but you and I have had some conversations too about I think there's certain providers that are good at certain things and not other things. And so you're kind of picking and choosing what they each do well, so that makes it even harder. All right, so obviously you mentioned you started off in the home building space. You've grown the business into rental housing to build, to rent and to apartments. And so I'm just curious to ask you. I'm always interested in the intersection of these spaces because I think on the surface people think they're so similar, but they really do have their own storylines or nuances and drivers. So as you've gotten, you know, more deeper into the space, what surprised you most or what have you found to be the key difference in the for sale housing market versus the rental housing market that most people out there, most analysts don't generally appreciate or recognize?
- [48:22]
B
Well, they're insanely siloed. I mean, you don't see anybody in the for sale business at a for rent conference and vice versa.
- [48:29]
A
Yeah.
- [48:31]
B
And. And they don't talk about each other. Even though one of the biggest threats to the apartment world is losing their tenants to home ownership. While all the entry level home buyers are trying to steal your, your tenants out of apartments. Nobody, nobody talks about that at all. And so we kind of sit in the middle of all of this and we're pulling it all together. And even the building materials companies have no idea how many apartments are going to get built this year or how many homes the home builders are going to build or what the consumer trends are and what's working and what's not. That's the fun part of our businesses. We're pulling it all together for everybody.
- [49:08]
A
Yeah, that's a great point. Yeah, they are very. Even within rentals. I mean sfr, it's really scattered. SFR is completely different group of people. Well, until it's changed with some last couple of years, but generally been a very different group of people than the apartment side.
- [49:20]
B
Can I riff on that for a minute, please?
- [49:21]
A
Yeah.
- [49:22]
B
Because they came out of different industries. So American Homes for Rent came out of public storage Pretium. Don Mullen came out of Mortgage Backed Securities Invitation Homes. You know, they came out of doing trailer parks in Phoenix. And. But they all saw these are just a whole bunch of, you know, different real estate and cash flows and it looks similar to them and our industry. And I'm going to riff on the apartment guys a little bit. I was, I was a huge proponent of this business. Our industry sat by and watched These guys build 10, $20 billion companies that did nothing about it. I mean, that was. You want to talk about something? I think that needs to be talked about. It's like, where's the entrepreneur in this industry when you completely miss something like that?
- [50:11]
A
Meaning miss the apartment?
- [50:13]
B
No, you missed the sfr.
- [50:15]
A
Oh, yeah, yeah, yeah, yeah, yeah. No, you're right. Yeah, they're layered to the, to the scene there. In fact, you know, I had a great convers conversation on this podcast with, with Fred Tuami as well as with Brian Smith. Her main mh. Fred was obviously as you know, invitation homes now pretty and a bunch of others. And, and what it dawned on me is that they were doing the apartment industry called centralization, you know, which is like, you know, smart lock, central management, you know, on site teams like that was, you know, those guys had to figure that a lot longer, but a lot years before the apartment guys figured it out. So I think you're right.
- [50:45]
B
And I was telling the apartment guys, you need to do this. Oh, that's crazy. People are going to, you know, you're going to let people tour without a sales agent there. I'm like, yeah, the home builders are even worse. So people want to tour, you know, when they get off work at 7 o' clock at night, all the sales agents would go home at 5.
- [51:02]
A
Yeah.
- [51:03]
B
Is that.
- [51:04]
A
Yeah. Anyway, you're right. Obviously apartments for years were not much different and still are for some cases. All right, so that gets us to a good conversation. Let's talk more about this intersection here. So obviously you guys work with a ton of home builders. How often are home. And you mentioned we're siloed. So I, I'm just genuinely curious myself on your thoughts on this. How often are home builders today considering some type of rental component, whether it's BTR or apartments for new master plan developments versus the same groups talking about it 10, 20 years ago. How much has that changed?
- [51:38]
B
Well, the, the, the master plan communities aren't the home builders. They're different.
- [51:42]
A
I'm, I'm sorry.
- [51:43]
B
Yeah, so the, the master plan communities. So when we were pushing this hard in 2018, every master plan community I talked to said that's, that's idiotic. Our homeowner residents don't Want rentals in our community. I mean, your apartment guys have heard that forever. And so they would only do the apartments at the end of the community, really. But then when a few of them started doing it, DMB started doing it. Lakewood Ranch started doing it in Sarasota. What they realized really quickly was, oh, wait a minute, these are really good tenants, by the way. They're people who probably rent for a year or two and then buy a home in our master plan community. And I just sold a bunch of my land earlier than I thought I was going to, so it's great for cash flows. Now, I tell you, every from 2018, not one master plan developer wanted to do it. I would say almost every single one of them is planning on doing it.
- [52:41]
A
Wow.
- [52:42]
B
So big change and they love it.
- [52:46]
A
So is part of it the. The benefit you mentioned? Like more of the. Is it the being able to sell some of land earlier? Is it the kind of diversified business model? I mean, what's the. What's driven that?
- [52:59]
B
It's. It's all of that. And it's. You know, people are moving to Phoenix and they wanted maybe rent for a year or two to make sure that they really like Phoenix. Yeah, this is a great opportunity to do that. Or we want to be near the kids and grandkids and. And my kids with their grant with their kids. Just bought a place in your community, and I'm not ready to buy yet. I. I want to rent to be near the kids for a while.
- [53:24]
A
That.
- [53:25]
B
That's who you're finding is renting in these units. The master plan guys, I will say, do tend to have more turnover because of that. Because there are people that are coming. I mean, the build to rent folks have more turnover because their tenants are there to rent for a year or two and then become homeowners.
- [53:41]
A
Yeah. And I'll do another soft plug. You guys have done some really great surveys of BTR renters, and there's some really interesting stuff. In fact, one of the things I always cite that I felt interesting from that is that one of the top draws for a BTR renter is the newness of these communities. So you just wonder how that even ages. But I'm sure the demand will still be there.
- [54:03]
B
Well, how about the newness of the house?
- [54:05]
A
Yeah, that's what I meant. Yeah. The newness of the home. Yeah.
- [54:07]
B
Yeah. Not just the community, so. Yeah. And that's why. Well, we'll probably get to this later, but I'll just. I'll just hit it now. So if there's about. What are the numbers? 24 to 30 million, depending on whether you go down to two to five units. People that rent apartments, there's 11. And if you include attached 14 million people that rent homes. So if we build 400,000 apartments per year for the 24 to 30 million apartment renters, shouldn't we be building 150,000 homes per year for the 11 to 14 million people who rent homes who just want something new? Yeah, we're not even, we're not even there yet. So I think it's gonna, I think it's a huge opportunity over the long term and it is cyclical and I know things are down right now because of interest rates and construction costs, but I think it's a big business and it's going to be around for decades.
- [55:06]
A
Oh, I completely agree. I think we're in the early innings of BTR for sure. And again, you've got, you guys have done a good job laying the research foundation for that. So I got my terminology wrong earlier. We're talking about master plan developers. I do want to talk about home builders too, though. In the previous cycle we saw the home builders focus on apartment development. Lennar and Toll brothers, as you know, they've since exited the apartment business and others have scaled back that business. I don't know if this is a fair statement or not, but at least for those who have exited, why hasn't the apartment development business been more, more center? Well, why haven't they found more synergies from the home builders?
- [55:48]
B
You know that that's been a big change over my career. So what I, I would say the biggest change is they're publicly traded companies and shareholders don't really value that kind of diversity, so they don't get any credit for it. So like, if I want to get them to apartments, I'll get into apartments with part of my investment portfolio. And I want you just to focus on building homes. So I think that's why they've got out. But a lot of private builders, less so today than usual, would always build apartments and hold onto them because the for sale business is such a cyclical business. Yeah, you want some steady cash flow in your, in your portfolio. So if you look at like, like General Lyon, who did both, or Warmington or there, there's a lot of privately held builders that do both. And I, I think it's just a function of being publicly traded.
- [56:43]
A
J. Interesting. Yeah, that makes sense. Yeah. And I noticed too, I think one of my wish, one like, you know, even like the timing of a, of a property sale from one quarter to the next would have like a big, you know, it's $150 million property. Right. Has a big impact on one quarter.
- [56:57]
B
Yeah. Your revenue's down. Why is that? It's because I made a whole bunch of money selling a year ago. Yeah, you get punished for that.
- [57:06]
A
That's crazy. And even on that you mentioned like we get to a point like the REITs have been so focused. I had Rich Hightower from Barclays and he was talking about, we're talking about the apartment REITs and he was noting, it's like, you know, to your point is, is investors, they want to be able to make a like a sector bet. So even like the coastal apartment rates moving into the Sunbelt, a lot of investors don't necessarily like that because they want to be able to say I want to bet here, I want to bet there. And so it is hard to be a balanced company and still excite investors.
- [57:34]
B
No, no, you're right.
- [57:35]
A
So let's, we touch up a little bit. Let's. All right, well let me actually one more question on this topic. So home builders have been active sellers addition to apartments. So let's go back to btr. The home builders have been active sellers of, of new homes to build trend players like imitation homes and SFR players. Even some of the apartment guys moving into BTR and it seems like a win win. Right. They're going to be able to sell some excess inventory or get some guaranteed sales. The BTR guys gain some product. They haven't take on the development risk. Is that trend here to stay as a reliable secondary business for homebuilders and a steady source of supply for the SFR BTR guys.
- [58:18]
B
I think it's definitely here to stay, but there's kind of a lot built into that. So the home builders look at this as like, hey, this is a brand new pool of people that can buy my homes. So when they're about ready to close out a community or they're about to hit quarter end where they've got too much inventory, if they, if they can sell some new homes to somebody and get it off their book or, or close out a community and move their sales agent over to another community, they're going to do that. So they've, they've, this is, and there's, there's the big institutions that are buying. But actually a lot of the buyers there, Jay, are mom and pop investors who just want to own a few of these for the very long that's one. But the, the build to rent is more of a dedicated, dedicated community and that's not as popular with every builder. Some builders want to do Those, some don't. Dr. Horton's gone big in that. They've been in a couple years where they were doing more than a billion dollars a year of this community is going to be a rental community. I do know a number of builders that underwrite every land buy as a for sale community and as a for rent community to compare and contrast the two. Because what may happen is the world may change and they may flip it from one to the other depending on where the demand is they to do it. Right. They really need to design the homes a little bit differently. And then the apartment developers know how to build apartments, but they cannot build a house or even a townhome nearly as efficiently as a homebuilder. So a lot of times they, they will basically contract with a builder and pay them a fee, sometimes with the builder taking construction cost risk and sometimes not to just build the community for them. And I know one of, one of my builder clients right now is leaning really hard into that is basically a fee business to get through this period when home sales are kind of tough and a way to keep their staff going and their trades busy. So yeah, there's a lot of different ways that this is going to be a permanent part of the business going forward.
- [60:25]
A
Yeah, and you make a good point. That's one of the things that even makes it hard to track is that you have, you know, these excess inventory scattered site build. They call it still called build to rent but it's not a build to rent community. And it's, it's a different, it's a different operating model. And so it's, it's, it's. And now you guys do a good job segmenting out, you know, BTR as the communities that are, you know, I think what, 25 plus homes and that, that, that obviously is a more. It's a, it's a simpler management model as well.
- [60:54]
B
Yeah.
- [60:55]
A
So let's go back to demographics. You alluded this earlier and some folks have been following the podcast for a while. I know we had your, your, your longtime colleague and co author of your housing demographics book, Chris Porter on this podcast and that was one of our most watched episodes this this year by the way. Chris is always great. So your team, I mean Chris and you guys, I mean you yourself, you guys I think are just the absolute, you know, gurus on housing demographics. So I got to put you in the hot seat. What are the key trends you're seeing that are going to shape. Your book's now what, five plus years old? We talk about this.
- [61:30]
B
No, it'll be 10 years old this coming year. Yeah.
- [61:33]
A
Okay, so you did a good job predicting some of the trends. But. And Chris and I dove into that, what you got right and wrong is obviously a lot right. But what about the next cycle? What key trends are you seeing? They're going to shape housing demand of all types, but especially rentals.
- [61:47]
B
Yeah. So we're. That book is now morphed into a quarterly report we're putting out for our clients and Eric Finnegan is our demographer now is running that and Chris is very involved too. The demographics are the long term train that you need to jump on. I mean it can't predict the economic cycles, but there's some big demographic shifts that are happening right now that I do not hear quoted enough. And I'm going to get into them a little bit. So some of them are pretty negative and some of them are pretty positive. So if you're in the apartment industry and you want to build apartments and target apartments to young people in their 20s and 30s, guess what? There's going to be no growth in America in the number of people aged 25 to 34 or maybe 300,000 over 10 years or something like that. Basically no growth. So you're going to be competing against an existing housing stock targeted to the exact same people for the exact same level of gross demand, if you will. And the other thing that is a positive but bad for rental housing is people are divorcing less too. So you're seeing a little less household formation there. On the positive side though, there's far more young people living alone, which is really. We did not predict this. I mean when I was in my twenties, nobody lived alone. You couldn't afford it. Nobody lived with their parents either because you didn't want to live with your parents and they don't want you to live with them. So not but that now the helicopter parents of their kids and they're now adults are happy to have their 20 something in the house. So anyway, there's more young people living alone. So that's good apartment demand for one bedrooms or maybe two bedrooms. More pets too. The big growth is going to be 45 to 54. So all those apartments we, all those tenants we had 20 years ago are in that 45 to 54 range and 75 plus. And everybody automatically goes to senior living, assisted living facilities. But there's a good, I'll call it a 10 year period or so or even more than that for a lot of people where they were maybe never a homeowner in the first place, I think 20% of them were not. They're always renters or they need to cash out and sell their home, or they just want to move and be near the kids and grandkids and choose to rent. That's a different, generally single story living rental environment with different amenities and different needs. And that's where the growth is going to be. I also believe, well, I know people are living longer. I do think AI is going to change the game on healthcare and people may even continue to live longer as we get better healthcare here. So that's going to be the opportunity. People are having fewer kids so that, you know, if I had kids, I needed to go get a house. Now I don't need kids. So you got older growth and older people living in apartments. And at the end of the day I think it's going to be a better product always wins. So I do believe there's some room for development here with better product targeting those segments I just mentioned and not just simply let's slap up an apartment and wait for people to graduate from college because there's no growth there at all.
- [65:17]
A
Yeah, those are all really good points. So a couple of things I want to dive in. There is, number one is that on the young adult population, obviously demographic trends are favoring sfr btr, no doubt about that. But when I look at the. And you know more about this than me, but when I get asked about the 20s and early mid-30s population, what jumps out to me in looking at some of these other third party forecasts is that the nation is not aging evenly across the country. The young adult population growth, you look at Moody's, Oxford, they're still expecting young adult population to grow in, you know, Texas, Florida, Southeast, Southwest, you know, Utah, the usual suspects. So the other markets you think you have, like you're the Midwest, coastal. I guess the. If you want to, this is, you know, more optimistic view. A lot of the housing supply is still old. So to your point, if you can bring in better quality product, it seems like there's still an opportunity in both. It's just maybe it's much more strategic than just like you said, slapping up an apartment complex and hoping people show up.
- [66:17]
B
Yeah, there's always room for new. I mean my favorite example there is you can go to Buffalo. That's gone from a million people to 600,000. But still some of the brand new apartments in Buffalo have done very well.
- [66:28]
A
Yeah, yeah, no, that, that, that's a, that's a great point. But let's, let's switch to another demand side topic and that is one that I'm sure you get asked about a lot because I know I get asked about it a lot, which is immigration and the impact it has on housing demands. This is this topic that's been way heavily politicized. But let's just get into the facts. So you guys on your demographics report had a really good chart, really great slide on how recent immigrant households are very different from native born households in terms of two things. Number one is their household sizes tend to be about double that of a native born population. Five people plus five plus per household versus two and a half. And then the types of rentals or I'm sorry, the types of places they live and think, particularly rentals, they tend to be smaller multifamily, which is generally less than the less likely institutional and probably sub institutional SFR as well. @ least that's what I get out of it's number one. I think that helps explain why the institutional apartment and SFR guys really say hey, we're not seeing much of an impact.
- [67:33]
B
Here.
- [67:34]
A
Right. But number, but I guess the question is am I reading that right? And then question two is, do you see that scenario where that outlook changes in terms of the.
- [67:43]
B
Impacts? Yeah, we've done some crazy deep dives on this. So let me, let me clarify a few things there. So. Sure, please, you're right. For about every five immigrants that come here, one new household gets created. That doesn't mean they're all go renting a place in Jim and five people in it, you know, two of them, they're all scattering about with friends and family and other things. But it, so it is a ratio of about 5 to 1. And I, I'll use an analogy here that, I'll use your analogy and then come at it the other way. So you've been posting lately, what I've been saying for a very long time too is you, you know, if you build more housing, even if it's expensive housing, it trickles its way down and helps everybody all the way down to the B and C and D apartments. Right. Just having more housing helps everyone. Did I get that right.
- [68:40]
A
Jay? Yeah, absolutely. Yeah. Filtering. It's a real thing.
- [68:43]
B
Yeah. So here's the, here's the opposite side of that. If all these immigrants come in and fill up all the Cs, it pushes some people up into Bs and it pushes some people up into A's. And so I, I think the apartment world is right when they're saying, hey, we're not seeing these people coming from Venezuela or whatever in our communities. You're right, but you're seeing other people getting pushed up and you're able to raise rates because of it. So it is impacting you just in more of a filtering.
- [69:16]
A
Way. Okay.
- [69:17]
B
Yeah. Essentially, if the immigrant slows, you know, and they see more vacancy down in the Cs and Bs, that does end up putting pressure on the A's. And that is what we're seeing right.
- [69:29]
A
Now. Yeah, I guess, I guess what I would be if I think there's more of a flight equality and a flight to affordability. I think that what, what my takeaway, and again, you tell me you push back if I'm wrong here is I think that it's a further headwind for the class C apartment and SFR space. Because, you know, if, if you're, if your A's and B's are relatively affordable to that demographic, are they going to want to move down to save a little bit of money but live in an older, you know, less amenitized home in a less desirable neighborhood? Like I, I think that class C market is going to be much more challenged and likely to see less kind of value add investment in a lot of these markets as well because of.
- [70:13]
B
That. Yeah, the, the lower rental class C or whatever you want to call it is, is definitely more impacted by immigration, positive and negative. But I think most people are looking for the best department for their buck, if they will. And when class C starts to get expensive, they're all, well, heck, I'll just move over to a class B. And so you start to see it flow up that.
- [70:38]
A
Way. Yeah, yeah, I agree and I think I'll make one more point on that. I'm a big proponent, in fact, I mean, to write this forever one of these days and I put out a big thing on this is like brokers, I give them all a hard time. That's where I love them all. But they, they do this thing where it's like B C class apartment, there's no such thing as A B, C. And I think this next cycle is really going to show that there's a big old difference between a class B apartment and a class C apartment. And that class C space is where I think there's going to be a lot more.
- [71:07]
B
Headwinds. So we'll see yeah, somebody needs to define that better. I agree with.
- [71:12]
A
You. Yeah. Well, the definitions aside, like there's, there's whether you call it upper, middle and bottom, like grouping middle and bottom together for too long and I think there'll be a distinction.
- [71:23]
B
There. Well, when a broker says bc, you and I all just know it's a C. That's.
- [71:27]
A
True. That is very true. All right, so let me ask you about another demand tailwind for apartments and single family rentals and build to rent, which is maybe the stat that I see you guys quoted in the Wall Street Journal and Bloomberg, et cetera, more than anything else. And that's the premium to buy versus rent. And I love, by the way, I love the way you guys do it because it's like an honest metric. It's not just some of online mortgage calculators where it's, you know, hey, let's assume you put 20% down and buy, you know, a really cheap house and then what's the difference? So you, you, you're bringing an all in monthly cost and then looking at the premium to buy versus rent and obviously that number now in many markets north of $1,000 and, and, and it's, it's higher than it's been in a while. Of course, everything's cyclical. This one does seem sticky for now. But when do you think that gap normalizes to some degree and what would it take to get.
- [72:20]
B
There? All right, so let me define it a little bit to make sure we're all talking apples and apples here. So what, what we do, as you, as you said, is we look in at the all in cost of buying the median home price, median home in a market, maintenance and everything else. And we compare that in relation to renting a similar house. And the gap between buying and renting is no matter what market you're in has blown out by about a thousand bucks a month. So if the normal premium was 400 bucks a month to be a homeowner, now it's 1400 bucks to be a homeowner. I mean, the only way that, you know, I don't think rents are going to go through the roof. I think the only way that that normalizes is if mortgage rates plunge. And you know, mortgage rates are basically like a go through a long analysis we did here. I think mortgage rates are basically exactly where the Fed wants them. So the Fed wants inflation at 2. They want their, they want their fed funds rate a point five higher that at three and a half. They want the ten year at four and a half. Which means the mortgage rate would be about 150, 200 basis points higher than that, which would be in the low sixes, which is exactly where it is. So that's gonna, that, that's a tailwind for the apartment market for many, many, many years, I believe is that it's going to be much more affordable to rent than own. And once we get through this oversupply, which, which by the way, we have like a 50 year of supply still getting completed in the market right now, once we get through that oversupply, then you're going to see a lot of pricing power in the, in the rental market because of.
- [74:06]
A
That. Yeah, no, I agree. And obviously SFR as well, you know, similar big advantage there. All right, so that gets us into the outlook, a nice transition. So, you know, I know that the, when as you mentioned, John, you're, you're, you love research. You're very good at research. But the hardest part of research is predicting the path forward. And I always hate people say, Jay, what's the crystal ball say? But it's part of the job. So I'm curious just to ask you, what are the key storylines going to be for housing in 2026? I want to ask about the For Sale and For Rent. Let's start with the, the for sale market. What's the, what are the key things we're talking about in.
- [74:44]
B
2026? Well, I think before anybody answers that question, they should say what their key interest rate and economic assumptions are, because then when they answer that question, I wonder what he or she's thinking about the economy. So we think the economy is going to continue to muddle along at very, at very little positive employment growth, like 0.5%. So that's our assumption and we could be wildly wrong there. That's completely out of our control. I do think we're in a very high risk economy right now, that it could go negative because all the debt in the world. But anyway, that's our assumption and we're not smarter than the bond market. The bond market's basically saying short term rates will come down a little bit, long term rates will come down a little bit. We're assuming the exact same two.
- [75:31]
A
Things.
- [75:31]
B
Yeah. So if that's the case, Jay, I think we're in for even. Regardless of what I just said about being the rental market having a huge advantage over the for sale market in terms of demand. I think that's true. I think absorptions are going to be, they're going to normalize here to be less than they have been because the economic growth and the number of adults that we're creating that have jobs just is not that significant. It'll be positive, but not as, not super strong. And I think the other thing heading into next year is, you know, the, the whole game was stay alive till 2025. Well, this is the end of 2025, so I, I think we're going to find out who didn't make it in 2026. So you're going to see a lot of what I'll call unsuccessful refinancings next year, which will probably create some opportunities, more opportunities to buy below replacement cost, which is kind of a silly thing to say because replacement cost has gone up 43% just because building costs have gone up 43%. So everything's below replacement cost. So I think that should slow construction on the for rent side too. If you can buy something below replacement cost, why would you build something? So I think that's the story for next year in the rental business. On the for sale side, we have too many unsold finished new homes. And already, if anybody's listening to this, if you've been out to a new home subdivision, you are getting a phenomenal deal right now. Not only is the price down, they are buying your mortgage rate down for a full 30 years. Down into the fours and sometimes even into the threes. The home builders are literally taking the equivalent of 8 to 10% of the home price and putting it into buying down your mortgage. And they made so much money the last few years they can afford to do that. So. But they need to clear that inventory. So there's not, there's not going to be much price appreciation in the new home market. It's probably going to be price deceleration and a great deal for tenants to buy homes from home.
- [77:45]
A
Builders. Yeah, I completely agree with you. And by the way, I'll mention something that I know you and I have had friendly discussions about before, but I'm in the Dallas Tanner Invitation Homes camp on this, which is I think we need more home sales for the rental market as well to do well, because that would be a indicator of a stronger economy, more household formation. So hopefully we get more momentum and more people take those deals that are out there. We'll.
- [78:10]
B
See. Yeah, well, I, I agree with you. That's why you need to ask people what their economic assumption is. The stronger economy, the better. Everybody.
- [78:17]
A
Does. 100. Absolutely. All right, so then let's for a forecast for 2026. I don't know if you all Put out your numbers yet, but just, you know, maybe just high level thoughts on home sale given your economic outlook you have right now. Like what are your thoughts on home sales and home prices as well as rents for.
- [78:33]
B
2026? It's going to be one of the most boring years in my career. And it is varying a lot by market. You know, when I, when I started the business, the market was wildly different around the country and then it kind of got all the same after the great financial crisis. Everybody except maybe Texas came down hard and now it's back to being very different. And actually the smile states where everybody wants to be are the toughest markets because they had the most run up in prices and rents and the most run up in supply. So I'm more bearish in 2026 on the great Sunbelt markets than I am in the other markets purely because there's a correction that has to happen there. And the rest of the markets I think will see very nominable growth at the paid weight, you know, wage growth, those type of.
- [79:32]
A
Things. So you think generally by market home prices and rents, you know, like in, in the higher supplied markets you think they'll kind of go in the same direction and the lower supplied markets they'll be better on both of sales.
- [79:44]
B
Prices are down year over year in every part of the country except the Midwest and the Northeast right now. And I a little bit and I think that continues into next year. And I think rents, I mean we're, we're coming off this period where new leases are not, I mean new leases are cheaper now than they were a year ago in most areas and we're jacking rents on the rental, on the renewals. But I don't think we're going to be able to jack the rents on the renewals as much next year either. So it should be a pretty modest year, pretty boring year for rent.
- [80:23]
A
Growth. I think that'll be one of the key themes of what plays out for renewals is what happens is going to be based on what happens with new leases in the spring leasing season. So we shall see. Well, John, this has been a lot of fun. Thank you for letting me pick your brain and, and wish you all the best for.
- [80:39]
B
2026. Well, you do a great job. You're a natural podcaster. Thank you so.
- [80:43]
A
Much. Thank you, John. And that's a wrap on episode number 65 of the rent Roll. Big thanks to John Burns for being our guest today. Thank you to Funnel to Foxen to Authentic and to Landing for sponsoring as well. As to our headline sponsors, JPI and Madera. And thank you to all of you for spending part of your day with us. We'll see you next.