While the millennial generation born after 1980 has driven demand for apartments in recent years, baby boomers — those born from 1946 to 1964 — will be the next wave, pushing up rents and spurring construction.
Mike Abelson calls it his “man cave.”
After his wife passed away, the 65-year-old sold his house and began renting a 1,400-square-foot apartment eight miles away in Bethesda, Md. The trial attorney now uses his downtime to enjoy warm summer evenings on his terrace.
“I pay a pretty steep rent, but it's worth it,” Mr. Abelson said. “I don't pay property taxes, I don't pay for maintenance, plumbing or electrical. I don't have to pay for the grass cutting. It's just easier than being a homeowner.”
The number of renters who are 65 or older will reach 12.2 million by 2030, more than double the level in 2010, according to research by the Urban Institute in Washington. While the millennial generation born after 1980 has driven demand for apartments in recent years, baby boomers — those born from 1946 to 1964 — will be the next wave, pushing up rents and spurring construction of more multifamily housing.
Real estate developers such as Bozzuto Group, Mr. Abelson's management company, and Alliance Residential Company are building projects where multiple generations can coexist. Should the supply of rental properties fail to keep up, however, younger people will be competing for housing with the burgeoning population of older Americans.
“It's a combination of their sheer size and that they're entering the age range where they increasingly downsize,” Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City, who has also studied the subject, said in a telephone interview. As a result, “it will put upward pressure on rents for all types” of multifamily homes, he said.
GROWTH AHEAD
Rappaport's research found that adults in their 50s and 60s accounted for almost all of the net increase in multifamily occupancy from 2000 to 2013. Once members of the baby boom generation start entering their 70s next year and downsize, “multifamily home construction is likely to continue to grow at a healthy rate through the end of the decade,” he wrote in a report published last month.
Already, rental vacancy rates are hovering near 21-year lows. That's pushing the national median rental price for all types of homes to $1,367 a month as of May, up 14% from four years ago, according to data from Seattle-based Zillow, a real-estate website.
Work began in June on the most buildings with five or more units since 1987, Commerce Department figures show. They represented about 41% of total housing starts, up from 16% when the economic expansion began in June 2009.
BUSINESS EXPANSION
Lennar Corp., a Miami-based builder primarily focused on single-family home construction, formed a $1.1 billion joint venture that will develop multifamily communities in 25 U.S. metropolitan markets.
Alliance Residential is designing buildings with smaller, more affordable units on ground floors to attract young adults, while creating more spacious apartments on upper levels, said Ian Swiergol, managing director of the developer's division covering New Mexico, Arizona and Utah. The bigger units feature wine refrigerators and touch-button window screens that appeal to baby boomers with more wealth.
In one extreme example, a 28-year-old man ended up living in the same community as his 90-year-old grandmother, said Mr. Swiergol, who is based in Phoenix.
SEIZING OPPORTUNITIES
At Bozzuto, which manages some 51,000 units in cities including Washington, Chicago and Atlanta, about 10% of renters in 2014 were at least 60 years old, up from 8% in 2012. The Greenbelt, Maryland-based company expects the share to continue to grow, said President Toby Bozzuto.
“Something's happening,” Mr. Bozzuto said in an interview, adding that the company is looking to add rental properties catering to residents 55 and older. “A good business person tries to put themselves in front of opportunity.”
Rents have already been picking up, rising 3.5% in the 12 months through June, matching the biggest increase since 2008, Labor Department data show. By comparison, consumer prices excluding food and fuel advanced 1.8% in the same period.
Rents are putting a floor under broader inflation, which Federal Reserve policy makers have said they need to be reasonably sure will approach their goal in the medium term before deciding to raise their benchmark interest rate for the first time since 2006.
GROWING DEMAND
One downside is that seniors on fixed incomes who have to, rather than choose to, rent will be hurt if supply doesn't keep pace with the projected increase in demand, said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute. Generation X adults — born from 1965 to 1980 — may also introduce another wrinkle, as those who lost their homes in the housing crisis remain in rentals.
“It's not unreasonable to think that some seniors are going to get hurt disproportionately,” she said. “There's going to be just a huge surge in the demand for rental housing, and there's not enough.”
Amy Schectman sees this first-hand as the chief executive officer of Jewish Community Housing for the Elderly. The non-profit provides subsidized rental units for older adults in Brighton, Mass., and the wait-list starts at two years for studio apartments, she said. For a two-bedroom, “you might be looking at seven-to-eight years.”
“We're already seeing huge demand,” Ms. Schectman said. “And it's only going to grow.”
