As the apartment industry looks forward to the next decade, one thing is clear: The younger generations are taking over.
As Generation X ages (the oldest Gen-Xers are 50 years old now; the youngest are 33), the more populous millennials (ages 15-32) have become the focus of most demographic studies. It is this age group that is driving the housing industry – and will continue to do so for the next 10-15 years.
Apartment markets are benefiting from the millennial invasion, as their preferred lifestyle and financial situation combine to make renting more attractive than owning.
This age group of confident, connected, tech-savvy, multitasking high achievers and were tightly scheduled as children and want some sort of activity during all waking hours.
Studies have shown they want instant gratification and prefer to work hard and play hard. They’re not the workaholics the previous two generations were, but give 100%-plus during working hours and can juggle many tasks at once.
And they don’t want to waste their time commuting. That’s why millennials prefer a “work-live-play” environment that promotes the Class A, urban-core apartment properties that have been growing along skylines across America.
Millennials are not driven to own their own homes. The homeownership rate for the ages 25-34 age cohort was 40.4% in 2014, compared to the 20-year low overall rate of 64.5%. As more millennials graduate from college and join the workforce, the cohort’s homeownership rate is forecast to fall below 40% through 2017, then rise to 41.7% in 2020 – still more than 300 basis points below the long-term average.
As has been well-documented, this group, comprising the oldest millennials and very youngest Gen-Xers, are starting families later, still must repay college loans and face stricter mortgage-underwriting guidelines.
The 25-34 group also is more mobile and less eager to be tied down. The time they spend inside their residence is meager.
Finally, they’re skeptical about owning, and they might be the first generation to believe that homeownership is not the American dream any more. They might have seen their parents, older siblings or friends’ parents lose their homes to foreclosure when the housing bubble burst and might not see housing as an investment.
These factors contribute largely to Axiometrics’ forecast that apartment occupancy will remain close to 95% through 2020, while effective rent growth averages just less than 4%.