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September 30, 2014
About Research Notes
Published quarterly, Research Notes offers exclusive, in-depth analysis from NMHC's research team on topics of special interest to apartment industry professionals, from the demographics behind apartment demand to effect of changing economic conditions on the multifamily industry.
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Questions or comments on Research Notes should be directed to Mark Obrinsky, NMHC's Senior Vice President of Research and Chief Economist, at mobrinsky@nmhc.org or 202/974-2329.

Demographic Trends: An Update

The current bullish outlook for the apartment industry rests not only on short-term cyclical dynamics but also—and more importantly—on longer-term demographic trends. The four most significant long-standing trends are:

    • increasing overall population and number of households;
    • increasing number of young persons (and households headed by young persons);
    • changing household composition—more single-person and single-parent households, fewer married couples with children; and
    • steady immigration.

      Demographic trends tend to unfold slowly over time—a sudden and dramatic fall in the share of single-person households, for example, is rather unlikely. Consequently, they don’t need to be so closely watched as other key trends for the apartment industry such as job growth or interest rates. However, major social and economic events (the Great Depression, for example) can move the needle a little more quickly, sometimes with lasting effects. It’s been more than six years since the Great Recession began—and just over five years since the recovery officially started—so it’s worthwhile checking whether any noticeable changes have taken place.

      This issue of Research Notes focuses on the first two trends—overall population changes and the growing number of young persons. While there are some changes worth noting, the bottom line is still the same: The demographics still look favorable for apartments.

      Population Growth

      The U.S. population grew 2.3 million in 2013—essentially the same as in the previous two years—to a total of 316.1 million. However, both the absolute increase and the growth have been trending down for more than two decades.

      Does the decline in the absolute increase in population portend a slowdown in demand growth for apartment residences? Not at all. Although the last year’s increase was well below the 3.5 million peak in 1992, it was higher than the average for the both 1970s and 1980s. And at more than two million people per year, we are adding the population equivalent of a New York or Florida in less than nine years. That is also approximately twice the annual population increase of the European Union countries combined.

      Despite the large absolute increase in the population, the population growth rate has slowed to its lowest level since the 1930s. Of course, the rate of growth naturally tends to slow as the overall population increases—and it’s a good thing, too. If the average growth rate of the first half of the 19th century (3.0 percent) had continued, the U.S. population today would be 2.6 billion.

      Births and Deaths

      Population growth consists of three parts: births, deaths and net immigration. Over the past two decades, the number of births has averaged four million. By contrast, the number of deaths has been slowly rising. As a result, the natural increase in the population—defined as the difference between the number of births and deaths—has been declining gradually.

      It is also useful to look at the rates of births and deaths. An increasing population normally means an increasing number of total deaths. However, the death rate, also called the mortality rate, actually declined through 2009 to an all-time low of 7.95. It has edged up a little since then, but it remains lower than at any time before 2004. Meanwhile, the birth rate fell to a record low of 12.6 births per 1,000 persons in 2012, which is the latest data available. The decrease in the birth rate has been greater than the long-term decline in the death rate, so that the net rate (births minus deaths per thousand), also called the rate of natural increase, is also at an all-time low.

      There is a related statistic demographers use to analyze trends: the fertility rate. This is defined as the number of births per 1,000 women aged 15 to 44. The fertility rate rose from 1997 to 2007, but it has fallen since then. It, too, now sits at an all-time low of 62.9 births per 1,000 women.


      Looking at the sharp recent fall in the fertility rate (and the corresponding decline in the overall birth rate), demographer Cheryl Russell has begun to talk about an “ongoing baby bust.” It’s too early to draw any conclusions—particularly since the total number of births has been tracking in a fairly narrow range—but this trend is worth keeping an eye on.

      Changing Age Distribution

      The aging of the large baby boom generation coupled with the increase in life expectancy has resulted in the widely noted “aging of the population” trend. This shows up in a variety of ways, including the record number of people over 65 (and over 75), the faster growth rate of older age cohorts and the continuing increase in the median age. (Some implications of this trend were analyzed in the December 2013 Research Notes.)

      However, the rapid increase in the number of young people is an important countertrend. For most of their lives, baby boomers have constituted the largest five-year, 10-year and 20-year age cohorts. But beginning in 2011 and continuing through 2013, that changed; the largest 10-year cohort was people between 20 and 29 years of age. And in 2012 and 2013, the biggest five-year age cohort included those in the 20- to 24-year-old category.

      Young people still have the highest propensity to rent apartments. Now 22.8 million in number, there are more 20- to 24-year-olds than ever before. This important component of apartment demand remains quite strong.

      Conclusion

      Demographic trends have been a key driver of the strong fundamentals and bright outlook for the apartment industry in recent years. Although the rate of population growth has edged down a bit, the overall increase in population is still quite high, with a corresponding increase in housing demand. And though the aging of the population is an important trend that warrants attention from the apartment industry, the number of young people in the prime renter age groups has increased as well. Both these trends continue to underpin the favorable outlook for the apartment industry in the coming years.

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