Household Formations (Not Jobs) A Better Indicator of Occupancy 

One industry research analyst suggests that tracking household formation data, and not focusing purely on top-line employment statistics, gives a greater indication of apartment occupancy performance.

Panelists recently discussed this demographic phenomenon during a session at NMHC’s Apartment Strategies Conference in La Quinta, Calif., while seeking to explain 2010’s surprising boost in apartment occupancy despite the nation losing 8.2 million jobs during the recent Great Recession.

Jay Lybik, Vice President, Market Re­search, Equity Residential, Chicago, says higher employment certainly can have a positive impact on apartment occupancy, but household formation growth, combined with the shrinking U.S. homeownership rate and the decline in home buying among the “30-year-old age group” home-buying pool, helps to explain how multifamily housing was the leading performer among real estate sectors and how that trend figures to continue this decade.

As an example, Lybik compared a married, 52-year-old drywaller losing his job in Phoenix with a 24-year-old chemical engineer from Kansas City taking a job in Boston.

“This is a wash in terms of overall employment, but it’s a net gain in household formation,” Lybik says. “There is no household ‘loss’ for the drywaller, who probably won’t be moving back home with his family. He likely will keep his house, look for another job and meanwhile receive unemployment benefits. But with the chemical engineer, a household has been formed.”

Also consider, for example, that when a married woman who was out of the workforce for several years rejoins, her hiring boosts the employment rate, but no household is formed. “She already is part of a household,” Lybik explains.

The Joint Center for Housing Studies at Harvard estimates that, during the 2000s, the United States added about 1.25 million households a year, and it even added 500,000 to 900,000 during the recent economic downturn. “Households are still being formed even when jobs are being lost,” Lybik says.

Of the 8.2 million jobs recently lost, about half were in manufacturing and construction, Lybik says. At the same time, about 1 million jobs were created in health care and education. “There are always pockets of the economy that are adding jobs,” Lybik says. He says apartment owners should identify those and appeal to demand in the areas where those hires took place.

In even better news for the apartment industry, The Wall Street Journal (WSJ) reported in January that “as the economy recovered and big companies began upgrading factories or building new ones, the number of manufacturing jobs in the United States last year grew 1.2 percent, or 136,000, the first increase since 1997,” according to government data. WSJ reports that HIS Global Insight and Moody’s Analytics suggest that total will grow again this year.

Today’s workforce, in general, indicates that it enjoys the flexibility that comes with an apartment lease compared to having to be tied down to a long-term mortgage, Lybik says. He adds that the goal for single and married professionals to buy their first house around age 30 is not what it used to be.

“Housing prices have certainly fallen, but it’s not as if those near their 30s are thinking, ‘Okay, let’s go buy one,’ ” Lybik says.

While 30 is an age when many Baby Boomers and Generation Xers purchased their first home, this buying pool, mostly made of Generation Y, will remain stable for the next few years and then not peak until about 2020.

– NAA’s Paul R. Bergeron III

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