Millennials, Baby Boomers, and Rebounding Multifamily Home Construction

Abstract

(ProQuest: ... denotes formulae omitted.)Construction of both single-family and multifamily homes collapsed with the onset of the housing crisis in 2006. Since then, single-family construction has moved up only modestly, but multifamily construction has rebounded strongly. A number of factors account for this difference. Prior to the crisis, single-family housing was significantly overbuilt, leaving excess stock. The large declines in income and employment associated with the severe recession and slow recovery drove households to move to less expensive housing units, which are typically multifamily units. The housing crisis itself-characterized by plunging house prices and waves of foreclosures-left many households wary of homeownership. This wariness has primarily dampened demand for single-family homes, which have accounted for 95 percent of owned housing units since 1990.Many analysts have speculated about the demographic composition driving the multifamily rebound. A number of anecdotes suggest millennials may be the main driver, due in part to a strong preference for living in urban cores where multifamily housing dominates. Other anecdotes suggest baby boomers downsizing from single-family homes may be the main driver.A careful parsing of census data shows both explanations are partly correct. Adults in their 20s and early 30s, the current age range of millennials, swung back toward living in multifamily units after the housing crisis, reversing their swing away from multifamily units during the housing boom. But adults in their 50s and 60s, the current age range of baby boomers, accounted for most of the increase in the actual number of occupied multifamily units both before and after the housing crisis. Looking forward, millennials will continue to help drive multifamily construction over the next few years. Over the longer term, however, baby boomers will be the main driver of multifamily construction as they age through their senior years.Section I describes the diverging paths of single-family and multifamily construction since the housing crisis and the demographic composition driving the multifamily rebound. Section II analyzes the forces underpinning changes in demand for multifamily units by adults in their 20s, 30s, and 40s. Section III does the same for adults 50 and older.I. The Multifamily Construction Rebound and Multifamily OccupancyFollowing the onset of the housing crisis in early 2006, single-family (SF) and multifamily (MF) construction plunged (Chart 1). By late 2009, starts of each unit type had decreased by nearly three-quarters. While single-family construction has moved up only tepidly since then, multifamily construction has rebounded strongly. By the end of 2014, multifamily construction starts had surpassed their pre-crisis level.The recent rebound in multifamily construction was driven primarily by young adults (ages 20-34), who sharply increased the number of multifamily units they occupied following a sharp decrease during the housing boom. Chart 2 breaks out recent changes in multifamily occupancy-the number of occupied multifamily units-into four age groups: young adults (ages 20-34), intermediate-age adults (35-49), older adults (50-69), and seniors (70+). The number of multifamily units headed by young adults decreased by one-half million from 2000 to 2007, freeing up multifamily units that other age groups could occupy. From 2007 to 2013, this pattern reversed: the number of multifamily units headed by young adults increased by one-half million. This increase required other age groups to free up existing units and builders to construct new ones. The implied one-million unit flip from young adults freeing up units to claiming new ones accounted for much of the rebound in multifamily construction.1 The Box describes the close relationship between construction and changes in occupancy.In contrast, intermediate-age adults (ages 35-49) have recently exerted modest downward pressure on multifamily construction as they flipped from claiming more units from 2000 to 2007 to freeing up units from 2007 to 2013. …