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CRE Finance World, Summer 2013

Demographics have thus been positive for renting, with growth in the number of young adult households getting a double boost. The coming of age of the echo boom generation has meant that the population aged 15 to 34, the age group with the highest renter rate, has been growing strongly. In particular the 25 to 34 age group, those who are most likely to form their own households, is rising for the first time since the 1980s (see Chart 6). As a share of population, this age cohort will peak around 2015, but the absolute size of this cohort will continue rising over the next decade. Moreover, young adults who delayed moving out of or returned to their parents’ homes during the recession because of the lack of job opportunities will head many of the newly forming households. Employed 16- to 34-year-olds increased by 1.1 million from the end of 2009 to the end of 2011, constituting the lion’s share of the 2.2 million increase in employment, according to the household survey. These younger households will most likely rent apartments. Chart 6 Young Adults Boost Renter Demand Sources: Census Bureau, Moody’s Analytics Age distribution is a key demographic driver of renting, but other factors also matter. Race, ethnicity, gender and marital status stand out as other differentiators of tenure choice. At the end of 2011, 55% of black households were renters, compared with only 26% of white non-Hispanic households. The Great Recession has resulted in a higher share of black renters, with an increase of 4 percentage points from late 2004, compared with 2 percentage points for white non-Hispanic households. Although age and marital status are correlated, the gap between the married-couple household renter rate, 18%, and unmarried households, 50%, is high. The gap is even larger for female-headed households, who have a 52% renter rate. CRE Finance World Summer 2013 54 Balanced Rental Supply Construction of homes that are most likely intended for renting never reached the fever pitch of single-family building during the housing boom. The rental market thus did not become overbuilt and has been able to easily support the modest pace of construction during the recovery. And although there has been a shift of single-family housing stock from owned units to renter units, the apartment market remains well-balanced. Construction of multifamily housing units, the vast majority of which are rental units, has outpaced that of single-family units. According to the American Community Survey, 86% of occupied multifamily homes are rented as of 2011, a share that has increased steadily since 2006. Since the economy started its expansion, the pace of multifamily housing starts has more than doubled, compared with an increase of 40% for single-family construction that is just starting to move up from a record slow pace (see Chart 7). These broad trends are evident in groundbreaking of homes in larger apartment buildings: Starts of units in five-unit or larger buildings rose steadily from an average of only 73,000 at the end of 2009 to 293,000 in the fourth quarter of last year. Of multifamily starts, 95% are in buildings with five or more units. Chart 7 Multifamily Building Recovers Faster... Sources: Census Bureau, Moody’s Analytics Acceleration in apartment construction exceeds that of single-family construction, but in the context of longer-term trends, apartment construction is still low and is not keeping up with household growth. At an annualized pace of 306,000 units in the fourth quarter of 2012, multifamily housing starts are still short of their remarkably stable prerecession pace of 340,000 units, a pace that was maintained from 1996 to 2006. Relative to households, actual Multifamily Housing: On a Path of Solid Growth


CRE Finance World, Summer 2013
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