Homeownership Trends by Age of Household

 

What does the propensity to rent tell us about the renter pool?

You can gain a new perspective by breaking down complex subject matter into smaller digestible parts. When analyzing the apartment sector, factors that determine the health of the market could be simplified into three core data points: capital market, labor market, and demographics. It’s the latter that we’ll focus on in this piece; specifically looking at demographic trends as they relate to homeownership rates based on the age of householder. What we expect the analysis to reveal is an understanding of how shifts in ownership trends impact the renter pool over time.

In order to estimate the size of the renter pool, MPF Research first studied U.S. homeownership rates. From 2000 to 2014, the U.S. homeownership rate declined by almost 3.0 points. By viewing this data by age of householder, the results illustrate a larger shift towards renting in the younger segments of the population. During this time, the greatest decline in homeownership occurred in the 35 – 39 age group which fell by 9.0 points. Other large shifts occurred in the 30 – 34 age group (-7.5 points), 40 – 44 (-7.4 points), 45 – 49 (-6.2 points), and 25 – 29 (-5.4 points).

HomeOwnership Chart 1

From there, we estimated the number of renter households by using 1 minus the homeownership rate times the total number of households. By taking the estimated 105 and 123 million U.S. households as of 2000 and 2014, respectively, combined with the average annual homeownership rates in the corresponding years, we can examine shifts over time.

HomeOwnership Chart 2

HomeOwnership Chart 3Here’s what we learned: MPF Research estimates the number of renter households grew by 9.7 million from 2000 to 2014. On the other hand, 5+ units inventory stock grew by 3.8 million from 2000 to 2013 (the most recent data), according to the Census Bureau. Assuming half of the renter pool expansion consisted of multifamily renters (approximately or 4.85 million households), this would suggest demand growth exceeded inventory growth by roughly one million units.

Moving forward, all indicators suggest an accelerating pace of household formation. And driving this trend will most certainly be Millennials. As a result, apartment fundamentals should remain healthy and supply growth will continue to exceed the long-term average. And the neighbor in the apartment next door will most likely be a tech-savvy twenty-something professional.


(Image Source: Shutterstock)

 


Senior Market Analyst, MPF Research

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David Wegman is a Senior Market Analyst for MPF Research, the market intelligence arm of RealPage. Mr. Wegman has eight years of commercial and residential real estate research experience. He holds a Bachelor of Arts in economics, an MBA in corporate finance, and the Chartered Financial Analyst (CFA) designation. Mr. Wegman is a current member of the DFW Association for Business Economics and holds a real estate broker license in the state of Texas.

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