November 3, 2017

Despite Millennials, the Strongest 20-34 Aged Population Growth in Rearview Mirror

According to the Census Bureau, there were approximately 249 million adults in the United States as of its last population estimates in July 2016. Versus the prior year, growth in the adult population measured slightly less than 0.9%, the weakest increase in over five decades and continuing a near-term deceleration that began in 2008 when the Great Recession started to affect immigration.

Looking forward, a reacceleration in growth remains highly dependent on immigration, which is obviously uncertain in the short-run given the significant political debate related to the topic. As such, the conversation for housing is more centered on movements between age cohorts and how that might impact the type of shelter required. The most obvious subplot discussed today relates to “Millennials”, particularly as an overlap to the multi-family market where they are a disproportionate source of demand.

While the definition of a millennial is subjective, we analyze the recent trend and outlook for 20-34 year olds given that they represent a primary source of multi-family tenants. For example, approximately 14% of the adult population lives in a core multi-family building, which we define as having at least five units. This is led by 25-29 year olds (24%), 20-24 year olds (22%) and 30-34 year olds (20%). Collectively, the three age cohorts most recently accounted for 26% of the adult population but almost 41% of the multi-family population.

Perhaps surprisingly, in 2016, the 20-34 year old population increased just 0.5%, trailing the overall increase in the adult population. This growth was actually slightly weaker than in 2015, both of which fell shy of the latest forecast by the Census Bureau for 0.7% growth. For perspective, slower growth for 20-34 year olds versus the remainder of the population in 2015-16 was a reversal from outperformance from 2011-14.

Maybe more surprising, the growth outlook is even weaker. As of the last published projections by the Census Bureau, each year from 2017-30, growth in the 20-34 year old population was expected to be worse than in 2016, turning negative by 2025. While it is true that overall population growth was anticipated to follow a similar decelerating trend, the relative weakness in the 20-34 year old cohort stands out. In fact, if you believe the demographic outlook of the Census Bureau, the 20-34 year old share of the adult population in 2030 at 24.5% would be the lowest in at least 100 years.

We believe that housing demand in general should benefit in the near term from the reversal of recessionary overhangs that are still lingering and note that inventory constraints are limiting the potential for additional household formation. But at the same time, when dissecting the type of assets required to satisfy this demand, the forecasted headwind to 20-34 year old population growth suggests that the tailwind is biased toward single-family living, unless secular shifts accelerate further.

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