Is demographics really destiny? Absolutely ... in the apartment industry, at least. It's no secret that demographic trends are a key factor in shaping rental dynamics. And these days, the demographic group with the biggest impact on the apartment industry is the echo boomers—loosely speaking, the children of the baby boomers. The leading edge of this generation has begun its foray into the housing market and these flip-flop wearing technophiles will continue to increase demand for apartment residences for years to come. Indeed, echo boomers—and the generation that follows—will drive rental demand in the next decade.
Defining generations requires identifying different birth waves and also understanding the social, political, and economic inflexion points that differentiate the experiences of these successive groups. In part, it is subjective. For present purposes, we use the generation names and birth years adopted by the Urban Land Institute. Thee following are 2005 figures.
For the apartment industry, it is the baby boomers and the echo boomers—the two largest groups—that are most important.
MEET THE PARENTS Since they began entering the housing market in the 1960s, the baby boomers have made up a large share of the residents of apartment communities. Their first impact was due in part to their sheer size—they are the largest generation in U.S. history. Rental production ramped up to meet the increase in demand, though the quality of the new construction often left something to be desired. In fact, the firms and individuals that composed the apartment industry then bore such little resemblance to today's large, professionally managed companies that many properties could hardly be thought of as “communities” at all.
The boomers were followed by the “baby bust” generation. Known as Generation X (or Gen X), their initial impact on the housing market was their lack of numbers—at least when compared to the boomers. In the apartment market, this was partially muted by the fact that many boomers delayed buying their first home for economic reasons. The rapid appreciation of single-family home prices in the late 1970s, coupled with record-high mortgage rates, made the cost of homeownership quite steep. Meanwhile, the deep recession of the early 1980s ensured that incomes couldn't keep pace. So the boomers continued to have an outsized impact in the rental market, leaving Gen Xers lost in the shuffle to a certain degree.
The last Gen Xer turned 18 in 1994. By then, the credit crunch was over; real estate investors seeking tax benefits had fied; and a new apartment industry was emerging. Having worked off the inventory overhang—a product of the overbuilding of the 1980s—construction firms began to recover. This time, with no boom, development fell in line with the long-term need.
At this time, the industry began realizing that, in addition to traditional entry-level housing, there was a growing market for upscale apartment residences—and not just in major metropolitans such as New York, Chicago, and San Francisco. Who was moving into these luxury units? Baby boomers, who, as a result, continued to drive apartment demand.
THE YOUNG ONES Fast forward to 2005. While the demographic trends remain clear, much of the discussion about the echo boomers focuses on the impact they will have on future housing demand. The reality is that they are already the most important generation for the apartment industry.
Consider the following. Of the almost 115 million households in the United States, here are the shares for recent generations: baby boomers (38 percent); Gen X (22 percent); echo boomers (12 percent). But the picture is quite different as to their share of the makeup of U.S. apartment residents. They are: baby boomers (26 percent); Gen X (25 percent); and echo boomers (29 percent).