Boom: Older Renters Comprise Largest Share of Market

Post written by

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.

More bad news for renters

by Kathryn Vasel   @KathrynVasel December 15, 2015: 8:36 AM ET

Bad news renters: Don’t expect much relief in 2016.

Next year, experts predict rents will rise faster than inflation, increasing around 3%-5% on a national level.

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“We are already in a rental affordability crisis, and 2016 won’t let up,” said Svenja Gudell, chief economist at Zillow.

In the years following the financial crisis, vacancy rates have plummeted as demand for renting rose, sending rents soaring.

Related: Half of all renters can’t afford the rent

But here’s the good news: While rents are expected to continue to climb next year, the pace will start to slow in some areas.

Prices in the country’s hottest rental markets, like San Francisco, Boston and New York City, are expected to plateau, according to Devin O’Brien, head of strategic marketing at rental platform Zumper.

Spillover from those hot markets, however, will push prices higher in surrounding areas as renters get priced out. For instance, O’Brien expects price gains in Oakland to outpace those in San Francisco in 2016. And rents in Cambridge will see a major rise as renters seek a cheaper alternative to Boston. He’s also expecting strong rental growth in Austin, Dallas, Houston and Miami.

Related: Not buying a home was my smartest financial move

While new construction will bring new rental units on the market, it isn’t likely to keep up with growing demand. Vacancy rates are so low in many places that it’ll take at least a year for supply to catch up to demand, according to research from Yardi Matrix. Plus, new inventory tends to be high-end, which won’t be much help with rental affordability.

Rising mortgage rates could also push rents higher. The Federal Reserve is expected to start raising interest rates for the first time in nine years, which could keep people in the rental market longer. Higher interest rates increase borrowing costs, boxing out potential buyers and sending rents even higher.

Paying more toward monthly rent makes it harder to save for a down payment and eventually become a homeowner, which could force people to stay in the rental market longer.

Are you a baby boomer in the rental market or looking to make the move from a homeowner to a renter? We want to hear from you. Share your story and you could be featured in an upcoming article on CNNMoney.

David Waronker (born June 5, 1961) is an American real estate investor. He is the President of CBD Real Estate Investment, L.L.C., and a lifelong ice hockey enthusiast. Waronker was the founder and commissioner of the World Hockey Association 2

Biography

Waronker is a proponent for affordable housing and for property rights. A total of twenty-three of his New Jersey developments were created and designed to include a set-aside for affordable housing. When communities resisted his development applications, he has sued the municipalities under the Fair Housing Act and the doctrine of the “Mount Laurel II” decision, in which he was the plaintiff. CBD and Waronker have been plaintiffs against New Jersey communities, including Cinnaminson Township, Edgewater Park,^[3]Harrison Township and Mount Laurel Township.

David Waronker also contributed to, and eventually joined, the Board of Directors of “The Defenders of Property Rights,” based in Washington, D.C. [1] This organization defends, as the name implies, property rights issues, challenging government on behalf of individuals, including the poor. Waronker has been a board member for the Defenders since 2003.^{[citation needed]}

Presently, Waronker resides with his wife Ruth and their four children on their horse farm in Scottsdale, Arizona, dividing his time between his office locations in New Jersey, Arizona and Florida.

Education and early career

Waronker grew up in Moorestown Township, New Jersey and was a 1980 graduate of Moorestown High School. He attended Boston University, and graduated with a Bachelor of Science Degree from the BU School of Management, in 1984.

During his senior year at BU, Waronker worked as an intern for the Beacon Hospitality Group, a Boston-based hotel developer. Waronker then worked for Jefferson National Mortgage of Marlton, New Jersey, as Head of the Real Estate Investment and Acquisition Division, focusing on the formation of limited partnerships to acquire, develop and sell residential development land throughout New Jersey.

CBD Development Group

In 1985, David Waronker formed CBD Development, Inc., a New Jersey based residential developer of single and multi-family housing. CBD Land Consultants, Inc., a New Jersey Real Estate Brokerage firm, was formed in 1987, with Waronker as the broker of record. CBD Builders Inc. was formed in 1989 for the purpose of constructing single and multifamily housing projects. Together, all three CBD entities were commonly known as “The CBD Development Group,” with the main office located in Mount Laurel, New Jersey. A sister office was located in Ship Bottom, New Jersey.

CBD experienced growth through the 1990s, developing large tracts of housing throughout New Jersey and Eastern Pennsylvania. With its CBD Builders subsidiary, CBD became active in construction, and built residential projects in Medford, Cherry Hill, Lumberton Township, Southampton Township, Long Beach Island, Mount Laurel Township, Fieldsboro, Edgewater Park Township, Glassboro, Cinnaminson Township, Williamstown, and Pemberton.

Waronker and CBD were active members of the Builders League of South Jersey, where Waronker chaired subcommittees, eventually rising to the executive committee. Waronker then became the only two-term BLSJ President, in 1999-2001. CBD was named the BLSJ “Builder of the Year” in 2000. On the executive committee of the BLSJ, Waronker formed a subcommittee known as the “Regulatory Enforcement Committee”, which in conjunction with the BLSH Action Committee, was proactive in enforcing the rights of its members. This committee became the largest subcommittee in BLSH history.

CBD expanded operations to Central Florida in 1998. An office was established in the Walt Disney town of Celebration, and CBD eventually devoted most of its development work to Central and Southwest Florida.  In 2005, Waronker formed “CBD Real Estate Investment, L.L.C.,” which today has replaced the three other CBD entities. This Florida limited liability company is active in acquiring development land throughout the state of Florida. With David Waronker at the helm, CBD Real Estate Investment, L.L.C. recently expanded into Arizona to buy and develop land. CBD currently has offices in Delran, New Jersey, and Scottsdale, Arizona, as well as the Florida office.

Additional business ventures

In 2000, David Waronker formed USALANDSALE.COM, L.L.C., now known as USALANDSALE, L.L.C. Based in Celebration, Florida, this company became a national “land bank” with hundreds of parcels; building lots, vacant land, acreage, and development land in 41 of the 50 United States.^{[citation needed]} USALANDSALE, L.L.C. also owned land in Canada

Additionally, Waronker formed Desert Mountain Land Holdings L.L.C., a land bank in Scottsdale, Arizona, in 2004. The company purchases vacant land and investment properties in the American Southwest, specifically in the states of Arizona, Nevada, New Mexico, Utah, Texas and California.

Waronker has invested in the ownership of minor league ice hockeyteams, and was the lead investor and owner of the Florida Seals, Macon Trax, Jacksonville Barracudas, Miami Manatees, and Asheville Aces.

Waronker also was the founder of the World Hockey Association 2, which eventually merged several of its teams with the defunct SEHL to form the Southern Professional Hockey League (SPHL).^[13]Waronker provided much of the start up capital for all teams, including several in which he had no ownership interest, such as the teams in Lakeland and Birmingham. Today, Waronker still retains an interest in one “AA” hockey franchise and still retains his childhood fascination with the Philadelphia Flyers.

Charity work

David Waronker is actively involved in horse rescues, while also an active volunteer member for both the Children’s Miracle Network and the American Cancer Society. Since 1997, CBD Real Estate Investment, L.L.C. has run a nonprofit organization named Hockey 4 Kids, which introduces disadvantaged and disabled children to the sport.

As alumni of the Boston University School of Management,David and his wife Ruth (nee Boulden) established The Ruth and David Waronker Scholarship Fund, which will provide scholarships for female student athletes.