Do Millennials Really Want Apartments?
Nearly every multifamily development announced in the last year or two mentioned Millennials, and many are designing specifically for those young professionals. But now that some of these projects have delivered, are Millennials really the ones renting them?
The question is more complicated in Houston, where sky-high pricing makes it nearly impossible for young adults to buy homes, than in other markets. Houston’s average monthly rent is $969 for a multifamily unit and $946 for a monthly mortgage payment based on a 30-year, $200k mortgage, CBRE Houston director of research Robert Kramp tells us.
Trulia takes it even further, reporting that it's a whopping 46% cheaper to buy a house than rent in Houston.
With a mortgage within reach, why is it so widely accepted that Millennials are the ones driving multifamily trends and signing those leases?
Morgan is definitely getting Millennial renters as predicted, president Alan Patton tells us. 71% of residents at his last two Houston lease-ups were younger than 34. Those Millennials were hard-won:
Alan says competition for Millennials is fierce, so you have to pay attention to every detail. That urban luxury comes at a price, especially since land and construction costs are rising.
On the flip side, Gen X is the primary driver at 2929 Weslayan, according to developer PMRG. The average age of its first wave of renters is 44, with only 17 Millennials leaping into the project as it first opened.
ApartmentData.com president Bruce McClenny is seeing the average age of apartment renters creep up slightly. He believes empty nesters are the biggest group of lease-signers right now and says Millennials are living at home longer, or with roomies.
The trend really may be more about location than property type. Metrostudy regional director Scott Davis says a quarter of Millennials are dedicated to urban living; they’ll rent or buy but they want a high-end urban experience.
In the Inner Loop, for instance, where most of Houston's urbanization is occurring, Millennials make up the majority of residents, despite higher-than-average rents. Downtown, which will almost triple the number of apartment units by 2019, has a higher concentration of Millennials than most parts of town; they make up 30.1% of residents. Their choice is even more evident when looking at the average Downtown income—17.9% make $35k per year. And although many new Downtown properties are luxury units, there's a record low affordable housing inventory in central Houston.
On the other end of the equation, one-quarter of Millennials want a suburban lifestyle like the ones they experienced growing up, Scott says. These are the ones who make up the largest pool of homebuyers in the US right now.
Scott tells us that when they do select a home, school quality is overwhelmingly the primary motivator, as it has been for all generations. But unlike the Boomers who next looked for the biggest house they could afford, Millennials prefer a shorter journey to work as their second criterion. They will trade off size for flexibility and proximity to work and retail. Millennials also typically have an experience-oriented lifestyle, so they prefer outdoor living spaces and multi-functional rooms as opposed to more interior dining or living spaces.
Robert believes even the young professionals who live in apartments are often only doing so because it's a hardship to save for a down payment. They're bogged down with student loans, and connectivity is taking up more of Millennials' monthly budgets. Add up cellphone, Internet and cable/streaming services, and multiply these expenditures over a five-year period, and it equates to several thousand dollars that could have otherwise been used for a down payment. That's ultimately deferring homeownership, and he thinks the trend will reverse.