The multifamily housing cycle

I like to cycle. Riding a bicycle is good exercise, a great way to get around locally and often a temporary respite from the pressures of modern life. If that surprises you — if you think of cycling as an activity mainly for younger people — you’re behind the times. In fact, older Americans, between the ages of 60 and 79, were responsible for 37 percent of the increase in bike trips between 1995 and 2009, as cycling among this group rose 320 percent during that time, according to the National Household Travel Survey.

The same dynamic applies to the multifamily sector. We think of the surge in urban apartment demand as coming entirely from the hipster crowd, when in fact the hip-replacement cohort is more likely to drive increased demand over the next decade or two. That’s the conclusion of a 2015 report from the Kansas City Federal Reserve entitled “Millennials, Baby Boomers, and Rebounding Multifamily Home Construction,” which finds that Baby Boomers accounted for most of the increase in multifamily demand before and after the housing crisis.

To be sure, Millennials drove demand for urban high-rise apartments during and immediately after the economic downturn, leading to the surge of development we’re now seeing. But over the longer term, the growth in apartment demand will come from older Americans and senior citizens. Why? Because there are so many of us. And because, more than previous generations, Baby Boomers are willing to embrace lifestyles and activities that are commonly seen as the province of the young—such as relocating to a work-live-play neighborhood. Or taking up cycling.

Who’s renting high-rise apartments matters, because the features and amenities sought by seniors may differ from Millennials. As the KC Fed paper notes, if Baby Boomers gravitate to larger units than their parents wanted, developers will build more, large units even if the number of apartments occupied by seniors doesn’t increase. Since older Americans have more money than their children, the market will cater more to their preferences in location and amenities.

Increasingly, investors and owners of apartments need to consider the changing needs and desires of renters on two fronts — Millennials and Baby Boomers — in designing and delivering new units to the market. Those two cohorts have differences, such as room size, and they have some things in common, such as proximity to shops and restaurants. In addition, the needs of both groups will change over time

So while the multifamily market will be strong for the foreseeable future, it will be more difficult for owners to meet all the conflicting demands of the market. If it all becomes too stressful, I recommend a refreshing bike ride to clear your head.

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