PHOENIX That’s the advice given by Leanne Lachman, president of Lachman Associates, during the “Demographics of Rental Demand” presentation at the National Multi Housing Council’s Annual meeting in Phoenix.
With the U.S. population expected to expand by 40 percent by 2040, immigration, job growth and the influence of the echo-boom generation are among the most influential factors for the apartment sector going forward, said Lachman. While the US population and the labor pool are each projected to increase by 1 percent per year, annual household formation is anticipated to grow by 1.3 percent. That’s because more individuals are choosing to live alone, and the range of households is becoming increasingly varied, she noted.
“‘Diverse’ is the term for multifamily demand,” Lachman said. And because the potential tenant pool is so mixed, she added, “Mass marketing is not going to work anymore.”
The three key sources of future demand for rental units are young people, immigrants and minorities, said the executive. Like their baby boomer parents, echo boomers have unique characteristics when it comes to their approach to residences. For instance, they often look for “green” developments, they use the Internet more frequently than other users to search for units and pay rent and they’re more likely to move often from one residence to another. This group is more likely to rent than others, and due to its sheer size, it will more than compensate for the 30-somethings that leave the rental market to buy single-family homes, therefore keeping occupancies high.
Ethnicity is also important when planning and marketing a community. In 2005, Lachman reported, a little over 25 percent of whites rented. Minorities, meanwhile, had more of a propensity to rent, with 50.5 percent of Hispanics, 40.8 percent of Asians and 51.8 percent of Blacks living in rental units. And between 2005 and 2015, it’s expected that minorities will form 6.8 million new households, compared with 4.7 million whites.
Developers, said Lachman, “will be far more successful in capturing the prime renter demographic if you respect and cater to cultural differences.” It helps, she said, to provide bilingual options both on community websites as well as when staffing.
In terms of immigrants, Lachman noted that currently, more than 12 percent of the U.S. population and 14 percent of workers are foreign- born, and in the next 10 years, immigrants will account for one-third of all household formation. This segment of the population is also most likely to rent, and the firm’s research found that more than 60 percent of all immigrant households that came to the U.S. since 1980 are renters. However, foreign-born households are also more likely to have critical housing needs, exacerbating the need for affordable product.
In fact, affordable product is necessary for all types of renters, not just immigrants and minorities. Lachman noted that at least three out of every 10 renters pay more than 30 percent of their income on housing, and data show that most of the payroll gains in coming years will be in low-wage earning occupations. Further, a growing population of seniors and young adults will need affordable housing, as will recent home buyers that can’t take on the cost burden of owning a single-family house and therefore move back into the rental market.
Among other takeaways from Lachman’s comments is that “demand favors niche products,” such as in-city live-work units, “new urbanism” apartments over retail, suburban loft apartments, transit-oriented residential development, condo-hotels, green buildings and seniors housing near universities. Interestingly, she reported, “residential demand will continue to be strongest in suburbs where job growth occurs, despite talk of resurgence in the center cities.” This, she says, will result in more redevelopment in the suburbs.
Author: Sule Aygoren Carranza is managing editor of Real Estate Forum and editor of Multi Housing Forum
