Some may find that last figure surprising. To be sure, the baby boomers remain influential. They still comprise a sizable share of all apartment residents. In addition, boomers (especially empty nesters) are an important target market for luxury apartment developers. But their significance for the apartment industry is likely to subside over the next decade, while the echo boomers will become even more important.
Projecting population trends in the next decade is relatively straightforward: The number of 30-year-olds a decade from now is roughly equal to the number of 20-year-olds today. Add in the net number of new immigrants, subtract the number likely to die, and you’ve got yourself a forecast.
For apartment demand, however, we want to know the number of households, not individuals. This is trickier, since it means gauging various social trends such as marriage, divorce, and how long young adults live with their parents. Rather than reinventing the wheel—and perhaps mucking it up—I simply use projections by the experts at Harvard University’s Joint Center for Housing Studies .
BY THE NUMBERS Yet, we still need to determine how many households are likely to live in apartments. This is really a two-step process. First, estimate the owner/renter share for each age group. Second, estimate the share of renters who will be in apartments, as opposed to single-family rentals, condos, or homes.
To begin, let’s assume that these relationships don’t change. flat is, we’ll assume that the homeownership rate for each age group will be the same in 2015 as it was in 2005, and that the share of renters in apartments is also the same 10 years from now.
What does all this tell us? First, the total number of apartment renters will rise by upwards of 1.8 million—from 15.9 million in 2005 to 17.7 million in 2015. Second, the number of echo boomer apartment residents jumps dramatically: From roughly 4.6 million in 2005 to almost 8 million in 2015. Correspondingly, the echo boomer share of apartment residents would rise to 45 percent. Finally, the number—and share—of apartment renters declines among all older generations, including Gen X and the baby boomers. (Note that despite this, baby boomers will still make up a sizeable 21 percent of apartment residents.)
These are interesting projections, to be sure, but they also depend on several assumptions. So how reasonable are they? Actually, they may be conservative. After all, 2005 marked a high point in homeownership rates when compared with the previous decade. Homeownership has already retreated somewhat since then, which can only change the tides in favor of apartments.
Most importantly, the conventional wisdom that buying a house is a no-lose proposition has been punctured. Home price appreciation is expected to underperform for the next few years, and today’s younger households are unlikely to feel any urgency to become homeowners. This could mean that the increase in the number of renters will last a while. Now that’s destiny at work.
Mark Obrinsky is vice president of research and chief economist for the National Multi Housing Council