Washington, D.C. - According to a new study from the National Multi Housing Council (NMHC), based here, and the National Apartment Association (NAA), in Arlington, Va., the tide is turning away from single-family home ownership as the number of Americans choosing to live in apartments is on the rise.
The study, titled Apartment Living in America, draws from data and analysis provided by industry researchers and is sponsored by many of the industry's leading multifamily developers and service providers.
Though the comparison of renting vs. buying a home is not a new analytical exercise, it probably has more merit today than ever before. The changing nature of American's demographics continues to change the way in which living accommodations are viewed and prioritized. Lifestyle changes are also a major contributing factor, with more affluent renters, discretionary renters and corporate transferees joining the rental pool.
The bottom line is this: those who choose to buy a new home and move within five years may not realize enough economic benefits to justify the exercise.
Backing up that rationalization, Apartment Living in America also explores the significant shift in apartment ownership and investment that has swept the industry. According to the report, in the last three years billions of dollars have been channeled into the apartment sector by institutional investors. NMHC president Jonathan L. Kempner believes that this benefits apartment residents. "We think more owners with a long-term view and the capital resources to keep their investments competitive is goodfor the apartment resident. They are very focused owners who expect the apartment management industry to be accountable for how it runs apartment communities."
Perhaps the most powerful realization in the study, says Kempner, is the fact that individuals and families of all economic levels and age groups are choosing apartments. "That is certainly an encouraging trend."
Randolph G. Hawthorne, chairman of NMHC's board of directors, sees other promising signs in the report. "We found that a growing number of individuals and families in all age and income brackets actually prefer the convenience, freedom and flexibility of renting," says Hawthorne.
According to Hawthorne, apartment life can also compete more effectively for the white-picket-fence crowd by going beyond design and building quality and to emphasize new amenities. Economies of scale permit apartment communities to provide residents with better, lower-cost products and services. "It makes a lot of economic sense for apartment managers to offer services that go beyond shelter. We are in the position to negotiate with local retailers, communications providers and even insurance companies to provide our residents with more choices and better services at lower costs."
Since singles and couples account for 70% of apartment residents, social interaction is important to the new wave of apartment renters, says Hawthorne. Also, 30% of all apartments are occupied by someone over the age of 50, and 18% are over 65. The new resource book also points out that the long-term cost of renting has actually been quite stable over recent years.
During the past 10 years, rents have actually increased less than the consumer price index, according to Kempner. "Home ownership involves considerable financial risk. For many individuals and families, in all income brackets, renting is the right economic choice," says Kempner.
Ron Terwilliger, CEO of Atlanta-based Trammell Crow Residential, the nation's largest apartment builder, says that one of the most important issues covered in the study is the buy vs. rent question. "This book offers a good start at questioning the myth that buying is somehow always better than renting," says Terwilliger. "The truth is that once you get past the emotional arguments and look at the numbers, renting makes more economic sense, especially if you live in one place for five years or less."
Other findings in Apartment Living In America include:
* The number of apartment residents has nearly doubled during the past 25 years. While a significant reason has been economics - e.g. the lack of a down payment, local housing costs as a percentage of income - there are other factors. The types of households living in apartments are changing. Of American apartments, 75% are home to couples and those who live alone. Increasingly, the apartment community has become the extended neighborhood for more and more Americans.
Apartments have become more market sensitive. Apartment designers are responding to the expanded market with new designs, cutting-edge communications technologies and environmental planning that focus as much on encouraging community pride as building shelter. The real estate investment industry is also responding with new capital resources, greatly improved management systems and a determination to offer an innovative array of services to apartment residents.
Using upgraded finishes, higher ceilings, fireplaces, garages, landscaping, state-of-the-art communications wiring, fitness centers, business centers, media rooms, libraries and high-tech security systems, apartment designers have begun to equal, and in some cases surpass, the amenities and preferred design components offered by single-family homes.
* "Lifestyle" renters - individuals and families who can afford to buy a house - are choosing to live in apartments. One in 10 apartment renters make more than $50,000 annually. While apartments continue to provide the nation with affordable housing, those making under $10,000 account for only 28% of apartment residents.
* Apartment residents have come to expect more space and more services, and they are getting them. The average newly constructed apartment is larger (up from about 860 sq. ft. on average in 1978 to 1,040 sq. ft. in 1995) with more rooms and community conveniences. Rooms which can be used as home offices and high-tech business centers are particularly attractive to young mobiles and older professionals.
* On-site and in-apartment services are becoming increasingly more important, especially for lifestyle renters. This growing group is demanding and getting concierge services like travel arrangements, dry cleaning pick up and delivery, food delivery, plant care and pet-sitting services while they travel. Parents are offered after-school educational programs, and seniors are being provided with transportation, housekeeping and other personal services for their children.
* In a period of economic uncertainty and corporate consolidation, the motivation to rent is stronger. Renting is a more straightforward and less risky financial transaction than owning. The costs of selling a home are substantial, and unanticipated moves greatly increase owners, costs. The spector of selling into a depressed market or being financially strapped while waiting for a sale are big risks borne by owners. On the other hand, rents have been stable and rent increases moderate in most local markets in recent years. During the past 10 years, rents for U.S. apartment residences have stayed within 1 to 2 percentage points of the consumer price index. Renting provides the flexibility of not being locked into the local market.
* Although apartments are vital to providing the nation with affordable housing, the image of the disinterested lower income or transient renter is not valid. In recent years, not-in-my-backyarders have opposed the development of new apartment communities based on the perception that renters are not interested in the welfare of the community. Studies have shown, however, that apartment renters in many ways are as actively involved in local communities as home owners.
* Apartment communities also use land more efficiently and help prevent sprawl. In cities where multifamily properties account for 30% to 50% of all housing, apartments use only 3% to 5% of the land.
* Apartment residents, according to the report, are far less likely than home owners to own or drive a car. Given the advent of new approaches like transit-related apartment communities, they are also more likely to support mass transit. Less likely to own a car and more likely to use mass transit, apartment residents also Provide walk-in clientele for local retail.
* According to the study, in recent years the apartment industry itself has undergone significant changes. Apartment properties have become a preferred investment for institutional investors like pension funds. In the past three years alone, billions of new investment dollars have been channeled into the apartment sector by these and other institutional investors. This new class of apartment investors are long-term owners with long-term ownership objectives. These capital-rich entities have the resources to maintain and constantly improve their investments.
* Tax law changes effected in the mid-'80s have forced new owners to look more at the competitiveness of the property as an investment rather than a producer of artificial paper profits. A focus on performance has helped ensure that owners provide residents with the right product at an appropriate cost.
* A new management industry has also emerged to serve these owners - with professional certification requirements and on-going training and education programs to arm them to provide an expanding number of new services to residents.
Apartment Living In America contains an extensive appendix featuring demographic and new construction statistics, structural characteristics of new apartment designs, data on market conditions and housing costs and information on apartment ownership and financing alternatives. Side-barred throughout the book are personal vignettes of apartment residents from across the nation, along with a significant number of.
Copies of Apartment Living in America can be purchased for $20 each ($30 for non-NMHC and non-NAA members), or $15 each for orders of 50 copies or more ($25 for non-members). To order, please send a letter and a check (NMHC will absorb postage and handling costs) to Pamela Gilmore, 1850 M Street, NW, Ste. 540, Washington, D.C., 20036.