A huge number of Generation Y renters may be poised to enter the renter pool, but it would be a mistake for multifamily owners and managers to focus on their needs and interests to the detriment of attracting a broad base of renters.
That was the cautionary message delivered by research analyst Jack Kern, managing director of Kern Investment Research, during a keynote session at the MFE Conference held last week in Las Vegas. Kern presented the results of special “Who is the Future Renter?” research study commissioned by Multifamily Executive magazine and distributed at the show.
“It’s a mistake just to focus on Gen Y,” Kern said. “Almost three quarters don’t have jobs yet. Roughly a third are getting financial help from mom and dad. And there are a significant number of people still at home.”
“A diversity of people live in apartments,” said Kern, adding that many of them live there by choice. “It’s always amazed me that when you get down to individual properties, there are a lot of people who are older.”
Recognize the Diversity
That said, those middle-aged and older persons are about to be joined by a bunch of younger ones. Between 2008 and 2020, the U.S. Census Bureau reports that approximately 57 million members of Gen Y will reach the age of 22—the beginning of prime rental age.
Even so, it would be a mistake for property owners to pipe music aimed at young people into lobbies that other generations may find annoying. It would likewise be foolish to use colors in leasing center or facades that might turn off all but young renters.
Instead, Kern advised that owners and developers focus on the rental pool at large. “All the generations of apartment renters have tremendous amount in common,” he said. “There’s a renter cohort that cuts across all generations. The top need is to provide comfort and security.”
To attract renters, it’s important to nail first impressions. Property owners and managers need to provide prospects with trustworthy information to make informed decisions and foster the kinds of personal relationships that lead to retention. “The same basic questions are on every renter’s mind—what do I get, where is it located, and what do I have to pay for it?”
Even so, marketing messages will need to change subtly as the demographics of the renter pool changes, thanks to an influx of young, diverse, tech-savvy people.
“Now you have a new pool of renters that are vastly more diverse than any we’ve ever seen. In the next 10 to 15 years, we’ll see unprecedented changes in how people decide to live their lives,” Kern said.
Renters Want to Rent
Part of that lifestyle change may be that more people decide to rent rather than own. Kern showed one slide demonstrating that Generation Y, born after 1980, is slightly less interested in owning a home than previous generations. Otherwise, though, the core values of Millennials are pretty similar to previous generations’.
Millennials may be a more diverse group (only 61 percent are non-Hispanic whites, compared to 73 percent for Baby Boomers), most minority renters behave like other renters, Kern said.
“There’s one exception. Hispanics tend to marry younger, have children quickly, and have larger families. As a consequence, they don’t stay in the rental pool as long as other clusters. Renters who are immigrants from non-Hispanic countries tend to rent for longer periods of time, but they also tend to be very family-oriented.”
For that reason, Kern said developers might want to reconsider the typical mix of one- and two-bedroom apartments. “Every owner I know who offers three-bedroom apartments has a waiting list,” he said.
Gen Y is also better educated than previous generations, particularly females. While 15 percent of Gen Y men completed four years of college, 2 percentage points higher than Baby Boomers, 20 percent of Gen Y women have a college degree. This has already translated into female GenYers earning more than their male counterparts.
For that reason, Kern believes that woman, who are already the major influence in deciding where households live, will become an even bigger influence in the future. These well-educated women are also likely to delay marriage until they establish a career and decide where they want to live.
As a consequence, the average age of brides, now almost 29, keeps rising. Moreover, only 21 percent of Millennials age 18 to 28 are married, compared to 42 percent of Boomers when they were in that age group, according to a 2009 survey by the Pew Research Center.
Young women, Kern says, have figured out guys. “They aren’t willing to enter into a relationship until they see that they clean the house, do the laundry, and pay the bills,” he said.
Tech-Savviness is Important
Other data indicate that younger potential renters will increasingly judge apartment companies by their technical profiles. They are much more likely than previous generations to create a social networking profile, post video of themselves, or text. In fact, 64 percent of Millennials have admitted to texting while driving.
While the use of social media is only expected to increase in the future, Kern suggested that potential renters may already by overloaded with messages from airlines, grocers, and other commercial sources. “A high percentage of people, even among Gen X and Gen Y, feel like social media is a distraction.”
The $64,000 question regarding GenY is when then they will move in big numbers into the rental market. A survey done last year by Pew indicated that 13 percent of Millenials have moved back home. Another 15 percent took on a roommate to cut expenses. And many still depend on their parents for income.
Compared to their income levels, apartments aren’t cheap. During the past 20 years, the average rent has just about doubled from $465 to $935 a month. Same goes for a gallon of gas, a loaf of bread, or a new home. But average incomes in America have barely moved, from $29,000 to $33,000.
It’s no wonder that renters have become quite sophisticated consumers. They are always looking for a better deal, balancing what they would pay in rent against dozens of other factors, including shopping, utilities, and, most of all, commutes.
“Renters get information from everybody,” Kern said, adding that the typical prospect looks at 10 to 15 properties before writing a check. “The only thing that they don’t look at is newspapers. Even printed apartment guides aren’t as important as looking up information online.”
Keep Renters Happy for the Long Haul
Most renters are happy for the first 3 or 4 months after moving into an apartment. Then they start to think about the experience—maybe a service request wasn’t answered, maybe a friend told them about an apartment that’s $500 cheaper and closer to work. “Transit to work is the real key for most renters,” Kern said.
Most renters don’t trust online information. They believe that an apartment won’t be available for the advertised rents. In fact, fenters, Kern opined, think of renting an apartment like buying a car—they don’t have the upper hand, and they are going to be taken advantage of.
For that reason, apartment owners need to do everything possible to engender trust among potential renters. That starts with the ease of getting to the community (did they have to stop at three lights before they turned in?), whether the landscaping is in good shape (were any of the plants dead?), and the courteousness of leasing agents (were they ignored when they entered?).
“The relationship with the renter starts before they even got to you. We’re seeing smarter renters, harder closings. So you have to ask, what do renters pay for?,” Kern continued. “They pay for you. Fundamentally, they want to pay for peaceful existence, for comfort and security.”
Keep it Personal
Kern expressed worry that landlord/tenant relationships are growing more and more impersonal.
“The fundamental tenant of the apartment business was that the landlord needed to know the resident. We’re getting farther and farther away from that. It worries me. It seems to me as an industry we’ve gotten very good at teaching people on-site not to have a relationship with the renter.”
Management companies, he said, work hard to remove themselves from direct contact with renters through resident portals, incentive programs that emphasize new tenant acquisition rather than retention, and social media.
“If you don’t have that relationship, you are setting yourself up for that horrible conversation you have with the renter when you have a rent increase, the one when they say, ‘Why are you asking for a 6 percent increase when inflation is only 3 percent?’”
Underscoring the need for personal relationships, surveys show that renters will put off moving if they are happy with their current situation. And properties that depend on relocation renters may not benefit from in-migration like they have in the past.
“We’re down to an astoundingly low rate of migration,” Kern said. U.S. population grew the most on the East Coast, West Coast, and Sun Belt from 2000 to 2009, a trend Kern expects to continue. “When people move, they move principally to these areas,” he said.
Property owners seem overly concerned with amenities such as business centers when the keys to attracting residents are a great-looking building and rental center. “If they pull into the property, look up at the building, and say, ‘Wow,’ that’s worth a lot of points. Same with the leasing center.”
Females more often than not make the decision about whether to accept an apartment or keep looking. Once inside a unit, women tend to look at details like cabinet pulls and door hardware, while men look at big-picture issues like where the computer and television will go.
Despite all his warnings, Kern believes demographic trends point to a bright future for the multifamily industry.
“There’s still a lot of pent-up demand for apartments. But let’s hope we don’t rocket up production, like a starter’s pistol went off. Instead, we need to have a gradual increase in occupancy across all apartment sectors as the economy improves.”