Fannie Mae: Millennials Driving Apartment Demand Surge

Many believe that Baby Boomers downsizing from single-family homes drive the current apartment boom. But Fannie Mae, Washington, D.C., said Millennials, not Boomers, power the surge.

Fannie Mae Director of Strategic Planning Patrick Simmons said Baby Boomers occupied millions of apartments in 2009. “But as they’ve aged, their demand for apartments hasn’t grown rapidly,” he said. “On the other hand, as millions of Millennials have recently begun their ‘housing careers,’ their demand for apartments far outpaced the demand growth from Boomers.”

Indeed, Simmons said Millennial demand for apartments exceeded Baby Boomer demand ten-fold between 2009 and 2014–the latest data available.

“One likely cause of the misconception that Boomers are driving apartment demand is confusion between changes in demand by generation–a group of persons born during the same period–and by age group,” Simmons said. To clarify he examined net changes in apartment consumption between 2009 and 2014 both by generation and by age.

Simmons said by far the most important generational apartment demand driver during those years was Millennials. “Millennials have been reaching adulthood and entering the housing market in large numbers in recent years,” he said. “For many of these new housing market entrants, the first step in their housing careers after leaving the parental nest has been occupancy of an apartment.”

Simmons cited two reasons why some might perceive a boom in Boomer apartment demand. “As successively larger waves of Boomers have advanced into this age group and replaced the much smaller generations who preceded them, the ranks of late-middle-aged and early-elderly apartment renters have swelled,” he said. “It is likely that some analysts see this substantial increase in the number of mature renters and erroneously conclude that large numbers of Baby Boomers are changing their housing behavior; that is, Boomers must be downsizing in droves, moving from owner-occupied single-family homes into apartments.” But he noted that many Boomers prefer to simply age in place rather than move to a rental apartment.

“Another reason for the misperception of surging Boomer apartment demand might be that commentators are focused on the largest buildings, which have seen more rapid gains in Boomer demand in recent years,” Simmons said. Though Boomer occupants in apartment buildings with 50 or more units increased 16 percent between 2009 and 2014, Boomer occupancy in apartment buildings of all sizes grew just 5 percent during the same period, he said.

“Millennials are still the dominant driver of [apartment demand] growth,” Simmons said. “The increase in Millennials’ consumption of rentals in 50-plus-unit buildings during the last five years was more than three times as great as that of Boomers.”

Simmons said Baby Boomers’ trends will change as they age, which could lead to substantially more apartment demand from this large and market-moving cohort. “However, the available evidence suggests that we’re not yet seeing a major shift of Boomers moving out of their single-family homes and into apartments, and that the true generational driver of mushrooming apartment demand in recent years has been the millions of Millennials who are just beginning their housing careers,” he said.