The apartment industry certainly has demographics on its side.
Gen Y, already a larger generation than the Baby Boomers, is starting to enter the rental pool in big numbers, and will likely stay longer than other generations. And Baby Boomers will soon create a senior citizen population unprecedented in size.
Over the next decade, the total number of renters is expected to rise by at least 3.8 million even under a low-immigration scenario, and by 5 million under a high immigration scenario, according to the Joint Center for Housing Studies of Harvard University.
But there are numbers, and then there are behaviors. Many believe that Gen Y isn’t interested in homeownership, that Baby Boomers will flock to independent living facilities, and that immigrants will continue to bolster city centers.
But that may not be the case: Some recent surveys and trends are turning those commonly held demographic beliefs on their ear.
Myth #1: Gen Y Isn’t Interested in Owning a Home.
Generation Y—those aged between 15 and 32—totals about 77.4 million, about a quarter of the total U.S. population and a larger population than the Baby Boomers, which number about 76.2 million.
The prevailing wisdom is that Gen Y has a less rosy view of homeownership given the events of the past few years. But is Gen Y really so different from previous generations? A survey of 1,241 Gen Y-ers just released by the Urban Land Institute (ULI) suggests that youngsters, too, long for white picket fences.
The survey found that about 36 percent of Gen Y already own a home, and of those that don’t, 70 percent expect to own one by the time they reach their early 30s. “It’s a surprising percentage,” says M. Leanne Lachman, a demographic analyst for the real estate industry who conducted the survey. “I think these young people really aspire to ownership the same as their parents did.”
The good news is, they’re taking longer to get there. Gen Yers stay in what demographers call “emerging adulthood” for longer periods of time than their predecessors.
For the first time in more than a century, more than half of those aged 25 to 34 have never been married, according to nonprofit research firm Council on Contemporary Families. And the average age of first-time homebuyers is now around 34, according to a study by the National Association of Home Builders, at least six years older than it was in 1980.
“People are putting off getting married and having children, and the more you elongate that interval, the greater the potential pool of renters,” says Ryan Severino, an economist for New York-based market research firm Reis.
Myth #2: Baby Boomers will Flock to Independent Living.
Just as apartment developers bank on the influx of Gen Y, seniors housing developers peg their hopes on the aging Baby Boomer generation, the oldest of which are just turning 65.
The number of people aged 55 to 64 increased by 10.4 million over the past decade, a nearly 43 percent increase, compared with total population growth of just 9.4 percent.
But are attitudes changing toward senior housing? About 75 percent of retiring boomers said they want to live in mixed-age and mixed-use communities, according to a 2009 survey by market-research firm RCLCO. The survey suggests that seniors are attracted to amenity-rich centers, walkability, and access to public transport, as opposed to being sequestered in a gated community.
“They’re a very active group, and I’m not sure we have the right models for them,” Lachman says. “I don’t know that the models their parents liked are the models they’re going to want. Do they want to be clustered by age?”
In the near term, the independent living sector—which is more of a lifestyle choice, as opposed to assisted living—has taken a hit due to the depressed single-family market. Among all seniors housing sectors, independent living has shown the lowest occupancy rates throughout the recession, in the mid- to high-80 percent range.
The vast majority of seniors prefer to age in place. They are often rooted in communities and in no rush to move. And given advances in medial science, the refrain that “50 is the new 40” has become a cultural cliché. The question is, will this coming seniors population behave as their parents did?
“People are going into independent living later and later, so the real growth is in assisted living,” Lachman says. “People are healthier longer now, and we’re going to have more Boomers working longer. I wouldn’t get totally excited about independent living.”
Myth #3: Immigrants Favor Urban Areas.
For all the talk of Gen Y and Baby Boomers, the people who aren’t yet in America loom just as large.
The foreign-born component of renter households increased to 19.6 percent in 2009, up from 17.4 percent at the start of the decade. The number of Hispanic renters has more than tripled in the last 30 years, to 7 million from just 1.9 million in 1980, according to the Harvard Joint Centers.
In the past, urban areas offered tight-knit ethnic communities—think Chinatown or Little Italy—and more affordable rents than most suburbs. But as city centers like New York, Atlanta, Chicago, and Seattle become more desirable for both Gen Y and Baby Boomers, the closer-in suburbs are also undergoing a transformation.
“More immigrants are ending up in the first-ring suburbs now, instead of the urban core, the way they did in previous generations,” says Greg Willett, vice president of research and analysis for Carrollton, Texas-based MPF research. “The urban core markets have gotten so gentrified that it pushes them out of the price range. Every city to some degree has that happening now.”
One of the defining characteristics of minority households is their size. Minority renter households aged 35 to 44 had an average of 3.2 people, compared to 2.6 for whites, and the average number of children per minority household is 1.1, against just 0.6 per white household, according to the Harvard Joint Centers.
Many developers in gateway cities with large immigrant populations believe that they’ll need to build bigger, more child-friendly configurations—i.e. more three-bedroom units—to accommodate this trend. Yet, given the state of the single-family housing market, this too may be a myth.
“When we have so much excess housing, you’re really looking at the ability to rent a single-family home, which is much more conducive to multigenerational living than renting an apartment,” says Hessam Nadji, managing director of Encino, Calif.-based Marcus & Millichap’s research division. “So I think to try to build for that would be a mistake.”