Feb 4, 2011
By Keat Foong, Executive Editor, Multi-Housing News Online
The renter of the next 10 to 20 years will be much more different from that of today. Are you prepared?
“The demographic of renters is changing in an unprecedented way, by age, family, composition, country of origin and even head of household,” says Jack Kern, managing director, Kern Investment Research LLC.
The changes have been occurring even as we speak, and apartment companies have certainly already been laying the groundwork to receive the new customers. Echo Boomers, Baby Boomers, immigrants, single households, older renters are all cohorts that will be the customers of apartments. Larger apartments, smaller apartments, a greater emphasis on downtown living, are all a part of the mix.
The demographic profile of the U.S. has been undergoing massive transformation within a mere 50 years, and the apartment industry has been feeling at the least the trickle-down effects. As the latest data from the census bureau indicates, the U.S. population has hit 308.7 million, an almost 10 percent increase from 281.4 million in 2000. The population is inexorable marching towards a projected half a billion by 2040. The majority of babies born in the country are now members of minorities.
The biggest trend that preoccupies most apartment companies today is the entry of the Echo Boomers into the renter market. This is the cohort born between 1980 and 1995, and they number 80 million. The “best estimate” is that there are about 15 million Echo Boomers that will enter the prime renter ago of 18 to 34 this decade, according to Kern.
“We see the entry of the Echo Boomers into that apartment market continuing for another 10 years,” says John Orehek, president and CEO of Security Properties. Orehek says his company is already witnessing the effects of this latest demographic wave. “From an age perspective, every year, the average renter age is falling. It will probably continue as the wave of Echo Boomers enter the housing market,” says Orehek.
Minorities form new majority
The renter population of the future will also continue to become more ethnically diverse. A large component of minorities will be immigrants, who are being added to the U.S. population at the rate of about 1 million per year. Major metropolitan areas will be especially affected by this trend, says Kern. “The majority of the population in most metropolitan areas will not be the traditionally measured non-Hispanic whites, but a mix of minority groups that are, in many instances across the nation becoming a super majority,” says Kern.
Mark Moran, vice president of marketing and business development at MyNewPlace, notes that this mega trend will be affecting the rental industry even more strongly than the homeownership market. He says a full 40 percent of the 800,000 households that entered the rental market between 2008-09 was driven by Hispanics and African Americans, who on average tend to have lower incomes.
The average renter in future will also become, in effect, poorer, especially if unemployment stabilizes at higher levels as a result of globalization and structural unemployment, and income inequality in the nation is entrenched and enhanced. “The biggest cluster of renters in the future will be in the 25- to 40-year-old age group, mostly female-headed households, with less affluent income profiles than previously seen,” says Kern. “Renters will not be more affluent than today as personal and household income has not kept pace with inflation, and the percentage of income now dedicated to rent is higher than historical averages.”
In the out years, the average renter age will also be higher, as people stay single, divorce or put off marriage, which is traditionally followed by entry into homeownership. As much as 40 percent of the age group could remain single or co-habitat, says Kern. All these singles will rent for longer periods of time.
Boomers return to apartments
As counterpoint to the Echo Boomers, the Baby Boomers should not be discounted as a significant source of customers for apartments of the future. They number about 77 million according to the latest data. It is true Generation Y are the most significant cohort in the immediate future, but beyond the next 10 years, their parents the Baby Boomers will be re-emerging in significance when they sell their homes, says Orehek.
Indeed, between 2009 and 2025, the older, 55- to 74-year-old, age group will increase by a hefty 76 percent [see table]. This compares to the 25- to 44-year-old age group rising by 19 percent. The population and subsequent household formation has two large increases going forward, “both equally important,” says Kern: within the 25- to 44-year-old cluster and above 55.” “Owners are going to have to pay attention to this change in ages as the younger clusters start to decline in the out years.”
Already, MyNewPlace shows an increase in the age of its visitors. In 2008, fewer than 15 percent of visitors were 55 years and older, says Moran. This year, visitors who were 55 years and older made up 23 percent of all visitors to the site?a 55 percent increase in two years, notes Moran. “The Boomers are moving into the sunset years. We are seeing that trend to be pretty pronounced. There is an emerging cohort which is the older renter.”
While the universe of all renters as a whole may be less well off in future, there will be plenty of affluent Boomers and Echo Boomers to spare in filling the exclusive, high end, renter-by-choice, apartments in fashionable 24-7 downtowns. “The Boomers will have a desire to live in urban areas. As they get out of their homes, they will drive demand for a different multifamily product,” forecasts Orehek. He adds, however, that Gen Y will be supplying more customers to the rental market compared to their retiring parents, and will therefore be the bigger phenomenon.
What new renters want
How does one cater to the new demographics? In the most immediate future, one of the most notable desires of many well-off Echo Boomers is to live in 24-7 urban areas, rather than in the suburbs. At least, that is the current fashion, which may prove to be an enduring one. “Echoes are getting out of college and they want to live in a downtown urban environment closer to jobs and amenities,” says Orehek. “They want to drop down from the elevator to go to Starbucks. The apartment is a part of their overall neighborhood where they drink coffee in the morning and have cocktails in the evenings.”
Security Properties is focusing on serving the Echo Boomer market by concentrating its development activities in what it calls “24/7 global gateway cities,” primarily in the West Coast, that feature “a variety of transit-oriented, mixed-use neighborhoods,” including Seattle, San Francisco, Portland and Chicago. The 40-year-old company, which has acquired or developed over 64,000 housing units, currently has in its development pipeline two market-rate high-rise apartment projects in downtown Seattle, 815 Pine and Kinects. “The focus of our development activities is on urban downtown locations,” says Orehek. The company targets the other large demographic, the immigrant population, on the acquisitions side.
Besides their desire to live “where the action is,” Echo boomers are also notoriously tech savvy. They live and breathe technology. This characteristic of the group implies it is all the more crucial for apartment companies to use the latest and the greatest cutting edge technology when marketing and otherwise providing for this market. Specifically, Generation Y is also known to be big social media players. In this regard, “while social media is yet to be a big factor in attracting new renters, it is playing a bigger and bigger role,” says MyNewPlace’s Moran.
“If apartment companies are not surveying residents, tracking them and being on top of what their residents are saying about them in the virtual world, they need to have a response strategy, and they need to do that sooner rather than later,” says Moran.
While generation Y may have a preference for city or town living, the other large group of rental customers, immigrants and their families will be concentrated more in the suburbs. “Immigrants, especially immigrants moving in with their families, may be a demand source for suburban apartments. They need more space than single urban residents,” notes Orehek, who says that Echo Boomers are more willing to accept smaller units in return for downtown living.
As far as immigrant families’ need for bigger apartments, Moran says more searches have recently been conducted on MyNewPlace for larger apartments. A few years ago, the first choice of searches was for one bedrooms followed by three bedrooms. But today, that apartment size preference has been reversed: Searches on MyNewPlace show that “three bedrooms are now more popular than one bedrooms,” says Moran. Forty five percent of searches on the site, which has about 4 million users, are now for three bedrooms, says Moran.
Indeed, apartment companies need to think about the needs of different ethnic groups. For example, there are now many customers, Moran notes, who have a. heavier use of the kitchen and a preference for gas-fired stove and hard flooring. “The diversity angle can be underestimated,” he says.
The original article can be found on the Multi-Housing News Website.