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Empty Nesters, Retirees Trading Homes for Apartments

The profile of potential renters has long leaned toward recent college graduates, but empty nesters and retirees are drawing increasing interest from apartment developers across the country.

Those consumers aren’t as tied to homeownership as they once were, and many are content to downsize into high-rise rentals, where there are spas and fitness centers and no lawns to cut. And well-to-do tenants have the money to pay the pricey rents that have become the norm in much of the nation.

Older, high-income households are helping to keep the U.S. rental market robust, even as overall demand has slipped for a couple of years and the number of completed rentals is closing in on a 30-year high, according to a 2019 national report released Tuesday by the Joint Center for Housing Studies at Harvard University.

Renter households headed by a person age 55 or older now account for more than a quarter of all renters, the study found. Meanwhile, the number of renters making at least $75,000 a year rose by 311,000 from 2017 to 2018, the eighth consecutive increase in higher-income renters, which have risen by 4.6 million, or 66%, since 2010.

Empty nesters and retirees are remaining far more active and living longer than in previous generations, leading to a shift in housing preferences, said John Sebree, first vice president and national director of Marcus & Millichap’s national multifamily housing group in Chicago.

“So they’re saying, ‘If we’re going to be active and we don’t need the kids around, then that urban lifestyle makes a lot more sense.’ That’s a lot more fun,’” Sebree said in an interview. “They don’t want to be surrounded by other baby boomers. They want to be surrounded by everybody.”

Developers are taking notice, Sebree added. They’re including upscale amenities such as dog parks and fitness centers and designing individual apartments with larger kitchens and dining rooms to allow boomers to host gatherings when their extended families come to visit.

Another factor contributing to the rise in older renters is the cooling housing markets across the country, explained Ken Thomas, an economist in Miami. Luxury single-family homes are taking longer to sell, and many owners are content to rent them instead, he noted.

“The people who are renting them are affluent, they’re in their 60s or 70s, and they have the money to afford these places,” Thomas said.

While the top end of the market is flourishing, the supply of low-cost rentals keeps shrinking, the study noted.

The stock of units renting for less than $800 per month fell by 1 million in 2016-2017 alone. The supply of units in that rent range has declined in every year since 2011, and new construction is not keeping pace, according to the study.

While the share of cost-burdened households has declined for seven consecutive years, cost-burdened renters outnumber homeowners by more than 3 million, according to the Harvard study. It defines cost-burdened as consumers devoting more than 30% of their incomes to housing costs.

Metropolitan Miami again leads the nation with more than 61% of renters burdened. The area of Miami-Dade, Broward and Palm Beach counties has ranked No. 1 every year since the center started compiling data in 2006. Oxnard, California, is second at 56.6% of renters who are burdened. The national average is 47.4%.

Chris Herbert, managing director of the Harvard center, said in a statement “public efforts will be necessary to close the gap” for millions of people struggling to find housing they can afford.

Matthew Rieger, chief executive of Miami-based Housing Trust Group, supports the expansion of federal tax credits to developers to encourage more affordable housing. Marcus & Millichap’s Sebree said the lack of affordable housing is the “primary topic of discussion” among industry experts and analysts.

Still, demographic trends should support strong rental demand in the years ahead, the study concluded.

The number of renter households fell in 2017 and 2018 after 12 years of gains. Now estimates are showing a rebound in early 2019.

In addition, renter household growth will total 4.2 million by 2028 if homeownership rates stay at their existing levels, according to estimates. Even if the homeownership rates rise 1.6 percentage points, renter household growth still could hit 2.1 million, the study found.

PAUL OWERS on CoStar News.