Since 2008, the year Lehman Bros. collapsed and home prices dropped precipitously, there has been a steady increase in the number of people ages 18 to 34 renting instead of buying homes. About 875,000 more households are made up of young adult renters than would have existed if the 2008-era trend had held steady, according to an analysis of census data by Jed Kolko, chief economist at Trulia, a real estate marketing website.
Moreover, as the economy slowly improves and job growth picks up steam, the millions of 20- and 30-somethings who shared living quarters with friends or nestled in their parents’ basements to ride out the economic shock waves from the Great Recession are beginning to branch out on their own. But they are still largely shut out of the mortgage market.
“They’re not going to go from living with their parents to buying a home,” said Mark Zandi, chief economist at Moody’s Analytics, speaking at a housing conference in Washington. “They’re going to rent an apartment.”
Developers and builders are responding to a rising demand not just from young adults but also from the larger population of Americans who do not have the means or the desire to buy a house.
“A lot of people 10 to 15 years ago who were able or willing to get a mortgage, now they can’t,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics. “They’re caught in an awful Catch-22 trying to get a down payment” now that they’re spending on rent.
While construction of single-family homes is only halfway back to its prerecession levels, construction of multifamily units – which include both condos and rentals – is at its highest level in 25 years. Apartment construction is exceeding its prerecession peaks in some markets, including Austin, Texas; the Washington metropolitan area; and San Jose, Calif., according to a recent report from the Joint Center for Housing Studies at Harvard.
Zandi said the nation needed even more new rental units, especially affordable ones. Vacancy rates for rentals are as low as they have been in more than two decades, and the price of renting, in turn, is climbing.
Developers are zeroing in on the generation of people in their 20s and early 30s, who now outnumber baby boomers. Many new amenity-laden complexes are updated versions of the 1990s soap opera “Melrose Place,” where socializing takes place at outdoor movie theaters next to swimming pools.
Developers are particularly creative in finding sites with cheaper land costs that give them the ability to offer more affordable near-luxury units. The Parkway Lofts in a scruffy neighborhood near a commuter train station in Bloomfield, N.J., opened in January and offers 17-foot ceilings, a roof deck and a movie screening room.
“It’s not your typical suburban, four-story, wood-built apartment building,” said Eugene Diaz, principal at Prism Capital Partners, which developed the 361-unit building from an old multistory factory.
Solomon’s company, the DSF Group, has new apartment buildings on the outskirts of New York as well as a 445-unit complex in Danvers, Massachusetts, near Boston.
All locations were selected because of their proximity to public transit. His modern apartment buildings in Vienna are a short walk to the Washington Metro line.
The Halstead Square apartments in Vienna, Va., near Washington, D.C., which rent for as much as $3,000 a month, include granite countertops and access to a smartphone app that allows residents to check on deliveries and request repairs. Focus groups of young people told the developer they want an almost hotel-like experience.