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Younger renters have long been the prized demographic for apartment owners, but there’s some indication that an older demographic is going to be an increasingly important segment for landlords in the coming decade, according to a research note published recently by the National Multi Housing Council. That is, the aging baby boom demographic might make itself felt in the rental market as its members downsize from home ownership.

The baby boom generation remains the demographic bulge that it’s been since U.S. birth rates, which dropped precipitously during the Depression in the 1930s, spiked during the prosperity of the 1950s. After another trough in the 1970s, the number of U.S. births has roughly stabilized at around 4 million a year.

Thus, the number of births has varied much less in the past 25 years than it has in the prior 50 years, which means that—projecting forward—the number of young people entering the housing market, which usually means as renters, should vary little over the next 20 years. By contrast, the size of the baby boom generation (the youngest of which are about the turn 50) carries with it the potential for a large number of people transitioning to rental housing.

Sheer generational size, however, isn’t the only variable. Household formation is critical. The number of U.S. households increased by 11.2 million between 2003 and 2013; more than half (58 percent) of that increase came among householders from 55-64 years of age. Over the next 10 years, however, that age group will make up only 12 percent of the increase in households.

The bulk (72 percent) of the increase in households from 2013-2023 will instead occur among householders in the two oldest groups combined (65-74 and over 75 years of age), estimates the NMHC research note. The share of household growth among the youngest two age groups (15-24 and 25-34 years of age) will be slightly higher in the next 10 years than in the previous decade, but both shares will remain relatively small.

How many of these new, older households will be renters? Based on the 2013 Current Population Survey rentership rates, the 25-34 age group will make up 31 percent of the renter increase going forward, the largest of any single age group. However, the 65-74 and over 75 groups will make up a combined 52 percent of the growth in renter households. By contrast, the growth in renter households in the 55-64 age group will be slightly more than offset by the decline in renters in the 45-54 age group between 2013 and 2023.

In short, a relatively large number of a relatively large demographic group will become renters in the next 10 years. Younger renters will remain important, but it will probably be their elders who provide some oomph to the demand for apartments over the next decade.

 

Source:  MHN