Student housing and multifamily are both considered recession-resistant asset classes. The reasoning is simple: even in a down market, people still need a place to live and students still go to college. While multifamily has been favored, student housing may actually perform better in a down cycle, according to Frederick W. Pierce, IV, of Pierce Education Properties.
“While more students pursue an education during a down cycle and demand for student housing expands accordingly, multifamily occupancies and rents are highly correlated to the economy,” Pierce, president and CEO of Pierce Education Properties, tells GlobeSt.com. “When unemployment increases, renters become more price sensitive. Those who are laid off often double up in housing with friends and family. Generally, none of those factors impact students and their demand for housing.”
While multifamily is resistant to a downturn, it is certainly still affected by economic changes. Even in the mildest downturn, rents are stalled of fall. “Those who retain jobs, but do not get pay raises or even get salary cuts, have to tighten their belts and can't pay higher rents,” says Pierce.
Student housing, on the other hand, is less volatile during a downturn. Pierce says that students, general, do not defer matriculation in a recession, many prolong their education by going to graduate school when graduating during a recession and many laid-off employees return to school during a recession for more education or job-training. “All of those factors create an environment where university enrollments actually grow faster during economic downcycles,” adds Pierce. “That creates stability in the student-housing sector during down cycles.”
These nuisances could soon become realities. Pierce predicts a mild recession in the near-term, and he says that other professionals are anticipating one as well. “Historically, the most accurate leading indicator of an economic recession is an inverted yield curve,” he says. Currently, the yield curve is either flat, at 90-day LIBOR, or inverted, at one year LIBOR.”
An inverted yield curve isn't the only reason that Pierce is predicting a recession. Like other experts, he is concerned about the length of the cycle and rising interesting rates. “The fact that we are in the longest period of expansion since the end of World War II, which must come to an end at some point, the negative impact that recent increases in interest rates have had in many sectors, the degree of volatility in the equity markets and the unpredictable political climate all point towards the eminency of a recession,” he says.
Finally, geo-political concerns are also putting pressure on economic growth and breeding instability. “The China-US situation is about much more than tariffs and I don't believe will be stabilized simply by reaching a compromise about tariffs,” says Peirce. “That instability will continue to disrupt the global economy and will require the US and the world to become less dependent upon China. That will take time to resolve itself.”
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Kelsi Maree Borland
