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Demographic and Generational Shifts Seen as Key Supply-and-Demand Drivers for Apartment Operators

Strategies Shifting as Rental Pool Gets Filled by Boomers, Millennials
June 14, 2018
The decision by young adults to postpone marriage and having children is one of several demographic factors keeping multifamily supply tight.

Deeming them nearly as important as development constraints and rising prices, experts at the National Apartment Association’s Apartmentalize conference in San Diego pointed to demographic and generational shifts as key supply-and-demand drivers in the U.S. multifamily industry.

Those factors play major roles in when consumers decide to rent, how long they stay in their apartments, and when - or if - they eventually leave apartment life to buy homes of their own. They also impact how apartment operators attract and retain tenants, and what kinds of on-site amenities and services they must offer.

Among the factors keeping multifamily supply tight is that consumers are increasingly putting off when they marry and have children, traditionally when households decide to make a home purchase. Slower household formation keeps more people in the rental pool, constraining supply and raising prices in most major markets.

“This isn’t just millennials - this has been going on for decades,” said Caitlin Walter, senior research director for the Washington, D.C-based National Multifamily Housing Council, during a conference session on supply constraints.

She pointed to U.S. Census data showing that the average age of first marriage for men rose from 25 to 29 between 1980 and 2015, with the marriage age for women going from 22 to 27. The average age at which couples had their first child went from 21.4 in 1970 to 26.3 in 2015.

Experts noted those millennials and younger Generation Z counterparts are in many cases just getting into the apartment market after years of extended post-college stays with their parents, caused by factors including high student debt and other lingering job-market fallouts from the Great Recession.

At the same time, apartment operators are also fielding growth in the arrival of Baby Boomers, the oldest of them now in their 70s, who are downsizing and moving out of houses and condos and into smaller rental units.

Cristina Sullivan, chief operating officer of Atlanta-based operator and developer Gables Residential, said generational preferences and differences are increasingly reflected in its properties’ offerings. The days of offering check-box lists of standard features to every cohort are clearly over.

Younger renters generally require less space and fewer high-service amenities, while usually being more concerned about cultural and sustainability issues.

One caveat, she noted, is that while property investors often place a high priority on sustainable elements, there’s little evidence that any age group is willing to pay higher rents for them.

Older residents gravitate more to properties offering on-site services with in-person attendants. And while older empty-nesters may be scaling down their costs and property maintenance duties in retirement, that doesn’t mean they’ve cast off their possessions or their need to entertain friends in the home, meaning the Boomers will go for more space within the rental unit.

“Someone in their 50s has a lot more stuff than someone who’s 25 years old,” Sullivan said. “They may want to be in the same neighborhood and be in proximity to nightlife and restaurants and shops, but if you’re 55 years old you’re probably not living in a 900-square-foot apartment.”

In another Apartmentalize session that touched on generational differences, panelists noted that, while Boomers are not averse to using technology, younger consumers were born using online and mobile apps and in fact don’t mind handling business matters with little or no human contact.

Judy Bellack, founder and chief executive of Florida-based consulting firm Judith Lawrence Associates, said apartment operators are using online “chatbots” and related artificial intelligence tools to engage with customers of all ages, with younger ones the most comfortable with the technologies.
This is important in a U.S. market where millennials and their younger Generation Z cohorts now make up more than half of the nation’s renters.

Customer service chatbots provide 24-hour online and mobile access, beyond regular apartment office business hours, and are able to answer questions and provide quick responses to potential renters, Bellack said.

Those attitudes will impact how operators deploy other engagement technologies that allow them to give virtual apartment tours, process leases, check availability and pricing, and post photos and floor plans. That in turn will impact how operators staff their properties and what skills new employees must have.

In its own 2017 housing report, Zillow Group noted that Generation Z (age 18-22) and millennials (23-37) generally rely more on online resources to help find rentals and make location decisions. Gen Z is particularly picky about the type of utilities that are in their units - for instance, gas or electric - and are also more likely to require or desire that a rental unit comes unfurnished - a sign that they have yet to accrue the furniture necessary to fill a home.

Younger consumers are generally more interested in apartment living than older cohorts, though more than half still desire to eventually own a home.

Those younger renters will have an increasing impact in coming years. In its recent multifamily investment outlook, Marcus & Millichap noted those 80 million millennials are now pushing into their late 20s and “may be showing independence.”

Last year saw a reversal of a trend that had existed since the recession, in which the percentage of young adults living with their parents had been increasing dramatically on an annual basis.

“Should the share of young adults living with family recede toward the long-term average, an additional 3 million young adults would need housing,” the Marcus report said.

At the other end of the age spectrum, consulting firm PwC recently reported survey results indicating senior apartments continue to garner growing attention from investors and developers.

This is the result of “enticing demographics,” as the oldest boomers reach 80 in 2026 and seek out new housing options. Starting in 2017 and accelerating at least through 2025, PwC anticipates upward demand trends as the segment of those age 82 to 86 - the dominant driver for assisted living and independent living units - is set to grow 29 percent, to 6.6 million.

At the Apartmentalize session on supply constraints, Norman Miller, professor of real estate finance at University of San Diego, said other demographic factors to watch in coming years include expected annual increases in net immigration into the U.S., which has recently dipped but is expected to outstrip growth rates in the non-immigrant population by 2030.

Also, U.S. home ownership rates show no signs of reversing a longtime decline, with prices rising and the overall supply of moderate-priced housing not meeting demand.

“The home ownership rate is not going to go up, it’s going to go down over the next couple of years, which puts even more pressure on rental housing units,” Miller said.

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