Welcome back to the "Clarion Calls: Inside Commercial Real Estate" video series. In our first video, we introduced five themes we believe are driving trends within commercial real estate and guiding our strategic investment targets: Demographics, Innovation, Shifting Globalization, Housing, and Resiliency.
In our previous video, we spoke about how those trends impact the Industrial and Logistics sector. Today, we'll take a deeper look at the Residential sector, another one of the property types benefitting from these themes.
Over the past decade, Residential has been one of the top-performing property sectors. Clarion's residential platform includes traditional multifamily apartments, build-to-rent townhomes, single family rentals, student housing, and senior housing. We believe these properties offer compelling attributes that create attractive long-term supply/demand fundamentals. All five of the macro themes that we have identified support our continued strategic investment into this sector.
Let's start with the largest drivers of performance in this sector – trends within Demographics and Housing. On one hand, we have the large Millennial and Gen Z cohorts entering their prime earning and household formation years. While older generations are more likely than past generations to rent by choice for reasons of convenience and flexibility, according to the U.S. Census Bureau, Millennials continue to be the largest renter group in the United States, followed by a growing number of Gen Z renters. These groups' renter status is largely driven by homeownership affordability challenges and the desire for greater flexibility. Demographic trends suggest that these generations favor what we like to call “next generation" cities – cities that typically offer a favorable cost of living, warmer weather, lower taxes, and good job growth. Charlotte and Denver are two examples. Within these cities, aging Millennials, in particular, are seeking differentiated product types, like built-to-rent townhomes and single family rentals that provide some of the benefits of owning a home, like more space and privacy, while maintaining the flexibility of renting. On the other end, the Baby Boomer generation, which is the wealthiest generation in American history, is living longer and supporting age-restricted residential housing.
Broader trends within Housing are also having a major impact on the sector. First, we have an overall undersupply of Housing across the U.S., as the construction of new homes post-Global Financial Crisis has fallen well short of demand. Even an uptick in new supply, which is expected in the near-term, is not expected to meaningfully impact the shortage. This has driven up the value of existing homes and created significant affordability challenges for many households. Coupled with already high for-sale housing prices and significantly higher borrowing costs, many would-be home buyers renting for longer. We believe that these dynamics are long-term tailwinds for all types of rental housing.
The next two themes are Innovation and Shifting Globalization Patterns. Innovation industries are expanding to new markets with a concentration of tech and creative industries, such as Austin and Raleigh, providing a tailwind for all sectors, including housing. Shifting Globalization Patterns are also driving demand as markets benefit from the nearshoring and onshoring of manufacturing are attracting investment and creating new jobs, leading to strong housing demand. Clarion's investment research group tracks these trends closely, using data to identify which markets and submarkets make the best targets for residential investment.
Lastly, we believe Resiliency is impacting the Residential sector. Health, economic, and regulatory risks, such as rising insurance costs require a defensive strategy to mitigate risks. At the same time, shifts in desirability of regions require a nimble strategy to take advantage of climate market opportunities. Clarion is focused on investing in assets and capital improvements that are well positioned for the future, with the goal of preserving value and function, and therefore liquidity.
Clarion views the residential sector as a high priority target for investment over the long term. We believe our deep experience and scale across the sector are key in identifying outperforming assets that will best meet the evolving needs of renters, both today and in the future.