James Chung
James Chung

As signs or economic recovery begin to emerge, it's given demographers a chance to look back and see exactly what damage was caused by the financial collapse. And as any apartment owner know, it has been massive, especially for the Gen Y cohort that it was expecting to occupy its units. James Chung, founder of Reach Advisors, a New York-based strategy and research firm focused on emerging shifts in the consumer landscape, has studied these demographic trends and says that, for example, men in their 20s have been hit especially hard—with one in four of them out of work. In a conversation with Multifamily Executive senior editor Les Shaver, Chung shares some of his observations and talks about how apartment owners and managers can use demographic indicators to steer their strategy over the next couple of years. His take? There's actually a lot of potential out there.

MFE: The apartment industry is very excited about 2012 and 2013. Do you share that excitement?
CHUNG: In general, I do but with a big caveat. The demand forces look very promising, and it’s one of the few categories of real estate where that’s the case. The big caveat is the supply issue. Fortunately, the recent inflow of newly built multifamily product has stalled, which is a good thing. However, there’s still a lot of overhang out there that’s a question mark. We did see a significant run-up in supply during the boom, especially supply that might have been targeted as multifamily rental product initially. That’s the million-dollar question: How much more rental supply will be shifted into the market even if it was product that was not initially for the market?

MFE: Do you think Gen Yers want to live in downtown apartments, or are they interested in single-family homes?
CHUNG: When we think about Gen Y, for the most part, there are preferences to live in multifamily product closer in, but that’s not a given. That still accommodates only a portion of the Gen Y market. There is also a sizeable market that is more flexible because their jobs may be in the suburbs or because economically it makes sense for them to be in something other than what they perceive as the ideal. Take a look at what’s happened with Gen Y household formation in the past two years. Although we’re looking at a larger age cohort entering their rental years, that has not necessarily translated into an equivalent number of household formations. Part of the issue on the demand side is that household formation has shrunk. They didn’t move into apartments. Sure, they’d like to live downtown, but a lot of them ended up in their parents' homes.

MFE: So have 20-somethings been disproportionably hit in this recession?
CHUNG: They have. There are a number of different indicators. If we look at males between 21 and 29, not attending school, one in four don’t have jobs. That has a serious impact. Are they desiring to rent in nice, urban product downtown? They might be desiring it, but they aren’t doing it. That’s a fundamental driver of what we’ve seen happening.

MFE: On the flip side, single women seem to be doing well, earning 107 percent of their male counterpart's in metro areas. Where do they want to live?
CHUNG: There are some factors that are constant, and there are some factors that are regional. One of the constants is a feeling of security. We can’t emphasize that enough with some of our clients. Where the property is will impact what you do. Another theme that we find in a lot of markets is that women ask if it’s a place where they can be fit and healthy. That takes shape in different forms, depending on where you are. We’re also seeing it’s an audience that’s very thoughtful about the trade-offs. For the most part, we’re seeing a willingness to make trade-offs and a willingness to compare options. What we find in our value engineering studies is that they’re a lot more discerning about what they need to have versus what they want to have but are willing to give up.

MFE: Are there any opportunities that the rental industry is missing out on right now?
CHUNG: There a couple of things that are absolutely intriguing to us. I think we will see more gender segregation in terms of product, which is going to create an interesting dynamic. It not only creates an interesting dynamic with Gen Y women, but it also creates an interesting dynamic if you match up product with the jobs created for this generation. What are the products that fit the income levels of those jobs and the personal preferences of those attracted by them? I think there’s going to be some really interesting matching opportunities. The multifamily developers that I see are the most forward looking are the ones that work hand-in-hand with the employment base to figure out what’s the kind of product that’s most appealing for the audience where the job creation is still happening.

MFE: Are single men tougher to court as a rental group, then?
CHUNG: It depends on the product. We’re big believers in counter-programming. I can guarantee what’s going to happen. We’ve been talking about Gen Y women earning more money. I can guarantee that market will be oversupplied in two years. That’s why we’re big believers in looking for the niches. I wouldn’t write off Gen Y men. You’re just looking at very different product.

MFE: Is there a concern that the current economy will force Gen Yers to miss their peak renting years? Essentially that they'll move straight from their parents' basement to a three-bedroom house in the suburbs?
CHUNG: That is a very possible scenario. It’s going to take five years of very, very fast job formation to catch up to where we were. We’ve seen a structural shift. We won’t see the same kind of patterns that we’ve seen in the past. It’s a very distinct challenge and a distinct opportunity, and this is part of why there’s a supply demand mismatch that will linger longer than we’d like. Gen Y, despite being more urban than prior generations, most likely will hit the same patterns. Of those that have kids, the vast majority will be moving to the suburbs because more of them will not have the cash flow capacity for private school. That creates a strong opportunity for municipalities that have public schools. As we think about Gen X in the suburbs, that product may look different. As we think about the future affordable product, it may still be multifamily of some sort, more so than we’ve seen in prior generations moving into their family formation years.

MFE: Outside of Gen Y, what other demographic groups present opportunities for apartment owners and developers?
CHUNG: I think there are interesting possibilities as Baby Boomers move into new life stages. But it’s one of those dangerous categories because everyone saw the Baby Boomers and that market is clearly oversupplied.