America’s Huge Renter Generation

Generation Y—the “Net” Generation—attracts far less attention than it deserves. By next year, as shown in Figure 1, it will be larger than the Baby Boomers. Furthermore, Gen Y will keep growing as young adult immigrants arrive and add to its ranks. In a demographic quirk, Generation Y covers 17 years, whereas the Boomers encompass 18 years. If Gen Y were extended one year backward or forward, it would already be larger than the Baby Boom generation. The youngest Gen Yers are still in high school; the oldest are in their early 30s.

Retailers certainly recognize the size and consumer preferences of tech-savvy Gen Y, colleges enjoy strong enrollments, and apartment owners profitably cater to these young adults and their mix-and-match roommates. Even so, their importance to America’s labor market and their potential real estate and consumer demands are not fully acknowledged.

The older cohort, which primarily rents, will become the first-time homebuyers who take advantage of bargain prices when the economy improves. In massive numbers, they will furnish those houses, become Home Depot or Lowe’s devotees, buy small cars, shop online, take “green” seriously, travel, go to concerts, and set new social and buying trends of their own. For apartment communities and retailers, Generation Y is the hope of the future.

Figure 1 highlights some of the marked differences between Generation Y and the Boomers. Highly mobile young people flock to urban areas, expect multiculturalism, and are already well traveled. Psychoanalyzing these two generations is fun, even though much of Gen Y is still in a formative stage. The somewhat arbitrary lists of remembered events at the bottom of Figure 1 suggest a change in outlook: four of the items in the left column are international, if one classifies the September 11 attacks in that way. In contrast, Vietnam and putting a man on the moon are the only activities outside the U.S. in the right column.

As indicated by its name, the Net Generation is web-identified. Not only do they rent apartments through Craig’s List, but they twitter their likes and dislikes about landlords and neighborhoods. As they take transparency to new heights, they can be an owner’s advocates or detractors.

For multifamily owners, a very significant demographic has always been the number of people turning 18 each year. Whether they are going off to college or starting their first jobs, young people at this stage begin to think about moving out on their own. Consequently, they drive demand for student housing and Class B and C apartments, which they generally share with roommates. Figure 2 shows over four million Americans turning 18 annually through 2020—replicating the pattern of the Baby Boomers from the mid-1960s to the late-1970s, which were decades of very high rental construction. Gen Yers turning 18 peaked in 2008 at over 4.4 million. The decline on the graph looks dramatic because of the scale: but, in fact, the figures remain high each year.

Recessions force households to double up, and the current situation is no exception. With only 20 percent of recent college graduates finding full-time employment, young people are returning to their parents or moving in with other relatives. The same is true of older children who have lost jobs or can only find positions at drastically reduced salaries. Many young people who were living independently in their own apartments are taking one or more roommates.

As shown in Figure 3, over half of young people aged 18 to 24 live in college dormitories or with parents: 56 percent of young men and 48 percent of young women. As the job market continues to contract, these percentages will rise. However, when the economy recovers, there will be rapid undoubling of households. These young adults would much rather be on their own—and most parents agree wholeheartedly.

The important takeaway is that a huge generation of young people is preparing to reshape the U.S. economy and culture. As the Boomers began to do 45 years ago, Gen Y will change the workplace, entertainment, vacation travel, and residential communities.

This article contains excerpts from Global Demographics 2009: Shaping Real Estate’s Future, written by the authors and published by The Urban Land Institute. For more information, visit www.uli.org