In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, March 02, 2021

Demographics: Renting vs. Owning

by Calculated Risk on 3/02/2021 10:49:00 AM

It was 11 years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive.

The drivers in 2011 were 1) very low new supply for apartments, and 2) strong demand (both favorable demographics, and people moving from owning to renting).  The move "from owning to renting" ended several years ago, and demographics for apartments are much less favorable than a decade ago.  

On demographics, a decade ago, a large cohort had been moving into the 20 to 29 year old age group (a key age group for renters).

As I noted in 2015, in the 2020s, a large cohort would be moving into the 30 to 39 age group (a key for ownership).   The drivers now are 1) very low supply of homes, and 2) strong demand (favorable demographics). 

NOTE: This graph uses the Vintage 2019 estimates. There are questions about these estimates, and we will have much better data when the 2020 Decennial Census data is released.

Population 20 to 34 years oldClick on graph for larger image.

This graph shows the longer term trend for three key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: current to 2060 is projected).

We can see the surge in the 20 to 29 age group last decade (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group peaked in 2018 / 2019 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak around 2023.  

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over this decade.

This demographics is now positive for home buying, and this is a key reason I've expected single family housing starts to increase this decade.