The two key trends that affect the outcome of the life cycle approach are: (1) the population’s age distribution; and (2) household composition—the relative shares of married couples with (or without) children, single parents, single-person households, and so on. Both are important and crucial to the success of tenure projections.

Multi-Dimensional Demographics

The most straightforward way to examine the impact of demographic trends is to assume that HORs for various demographic groups don’t change over time; instead, assume that the only changing variable is the distribution of households among those groups.

Start by focusing solely on the changing age distribution. Applying 2010’s HORs by age group to population and household formation projections gives the number of homeowners in each age group, which can give us an overall HOR.

Although the absolute number of households in every age category under 45 rises, the share of households in most of these groups actually falls because the increase in these groups is more than offset by baby boomers moving into the older age groups. Since those older age groups tend to have higher HORs, the net impact of the changing age distribution alone is to raise the overall HOR by less than 1 percentage point (from 66.7 percent to 67.5 percent). Thus, if the analysis of data over the next decade were restricted solely to the changing age distribution, then it would be reasonable to conclude that demographics will push up the HOR.

But there are other important demographic trends, too. Even if the HOR for each household type doesn’t change, changing household composition can also affect the overall HOR simply because of the changing distribution of household types. Projections from Harvard’s Joint Center for Housing Studies forecast a future population with more married couples without children, more singles, and more “other” types of residents (mainly unrelated roommates), but fewer married couples with children, fewer partners (with or without children), and fewer single-parent households. Interestingly, the net effect of these changes on the HOR is almost zero—a 66.7 percent vs. 66.8 percent rate.

A third demographic dimension of significance to the apartment industry is immigration. The household projections from the Joint Center do not provide a breakdown of households by residency status. But they do provide projections for a different demographic trend that can affect the overall HOR: race and ethnicity. The share of non-Hispanic white households will decline considerably, while the share of “other” households will rise. Since non-Hispanic whites have, by far, the highest HORs, this shifting racial and ethnic composition by itself will cause the overall HOR to fall by more than 1 percentage point.