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Essex Property Trust Inc ESS

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The U.S. Needs More Homes, but Shortage Not as Bad as Some Fear; Raising Near-Term Starts Forecast

Analyst Note

| Brian Bernard, CFA, CPA |

Despite rising concerns about an affordability crisis, demand for new and existing homes continues to outpace historical averages. Strong nationwide demand for housing has outstripped supply, contributing to soaring home prices. While we agree that more homes are needed in the United States to accommodate household formations, we think some estimates of the housing shortage are too severe. For example, the National Association of Realtors and Rosen Consulting Group recently published a report that concludes that U.S. housing stock is undersupplied by at least 5.5 million units. To calculate this figure, the report compared average annual home completions during 1968-2000 (1.5 million) to the average pace of annual completions during 2001-20 (1.23 million). The difference between these two figures (0.276 million) is viewed as an annual deficit that has accumulated to a 5.5 million-unit shortage over the last 20 years. However, this approach doesn't consider that population growth has been on a downward trend since the late 1990s, nor does it account for demographic changes. Based on our calculations, which consider household formations and the historical ratio of completions to new households (1.16), we estimate the shortage is closer to 3.8 million units.

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Company Profile

Business Description

Essex Property Trust owns a portfolio of 250 apartment communities with over 60,000 units and is developing four additional properties with 955 units. The company focuses on owning large, high-quality properties on the West Coast in the urban and suburban submarkets of Southern California, Northern California, and Seattle.

1100 Park Place, Suite 200
San Mateo, CA, 94403
T +1 650 655-7800
Sector Real Estate
Industry REIT - Residential
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type Hard Assets
Employees 1,799

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