Boom: Older Renters Comprise Largest Share of Market
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Sophie Zatterstrom Gore
Axiometrics Analytics Workflow Manager Sophie Zatterstrom Gore analyzes apartment market metrics and communicates findings to clients.
Your kids are off to college, and their bedrooms house nothing but the memories of days gone by. Your muscles may not be what they used to be, and you really, really don’t want to keep mowing the lawn or replacing shingles on the roof. And that commute to work just gets longer and longer.
You’re an empty-nester, and you wonder whether you should downsize – sell the suburban house and rent an apartment in one of those shiny, amenity-laden new properties near downtown.
You wouldn’t be the only one.
The younger generation may be poised to take over the apartment industry in the next 10-15 years, as my colleague KC Sanjay wrote in this space last week, but baby-boomers and older Generation Xers accounted for the largest share of renters as of 2014, according to Axiometrics’ analysis of U.S. Census data.
Renters ages 45-64 comprise the largest share of the apartment market.
As the chart above shows, the age demographics of renters has changed from 10 years ago. Back then, renters ages 45-64 comprised 25.8% of the market. They’re 30.2% of the market today, and when you add in renters ages 65 and older, that percentage grows to 44.4%. Meanwhile, youngsters ages 25 and younger make up 9.1% of all renter householders today, compared to the 13.4% of 2005.
These older renters like the reduction of responsibilities that come with homeownership, and they enjoy the benefits of urban-core living. Being in town reduces their commute to work – they may not even have to drive if solid public transportation is nearby – and they can enjoy the nearby restaurants, shopping, sporting and cultural arts events.
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Though apartment demographics have changed, the 2005 rental market was pretty healthy, especially coming just a few years after the tech-bust recession of the early 2000s. The table below shows some crucial data points related to the apartment market in 2005 and 2014.
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The average effective rent may be $206 more today than in 2005 – a 21.4% increase that fits well with the 21.2% cumulative inflation rate from 2005-2014 — but the good news for renters is that an apartment is actually more affordable now when you look at the ratio of rent to household income.
Rent took a lower percentage of income in 2014 than in 2005.
Regardless of whether the age group itself is growing – or just its renter householder share – property owners, developers and investors still face the reality that a larger proportion of renters are now ages 45 and older than any other time in the past 10 years. How does that affect the apartment industry?
The number of renters in each age group.
Renters in their 20s, living on their own for the first time, likely have completely different demands than those in their late 40s or 50s who are downsizing. For example, millennials prefer one-bedroom apartments, and apartment developers are adding more of those units to their unit mix. But the boomers and Gen Xers are more likely to demand two-bedroom units: The second bedroom can be used as an office and double as an extra bedroom for when the kids and grandkids come over.
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Of course, people in all age groups enjoy many of the same amenities: the pool, the fitness center, the high-speed wi-fi.
From the property owner/manager side, the 45- to 64-year-old who has worked for 20-40 years likely makes more money than a 20-something who recently entered the work market. Nearly 65% (64.9%) of renter householders in the 45-64 age bracket makes over $50,000 a year. That ratio for renter householders under the age of 25 is 26.1%. That could be one reason the apartment market has been so strong the past 18 months: Higher income means landlords can raise rents higher, and the 45-64 set still sees good value.
Renters ages 45-64 tend to have higher incomes.
If you’re one of those empty-nesters who might be ready to downsize, there’s plenty of urban-core apartments to choose from. You might even make some new friends in the clubhouse.