Apartment living is becoming more popular among households who could otherwise afford to buy a home according to this NMHC presentation.

In the early 1900s, apartment living was considered chic. America's cities were high density, pedestrian friendly areas. But the arrival of new transportation systems and evolutions in the mortgage finance system made it possible for families to leave the cities. After World War II the American Dream came to be solidly defined as owning a home of one's own, usually a single family, detached home.

Now it appears the pendulum is swinging back to favor apartment living. Today, fully 15% of American households rent an apartment in a building with 5 or more units. And the number of apartment renters is growing. In 1999, the number of people who rent apartments in buildings with five or more units was up 2.2%, while the total number of households grew just 1.4%.

Not only is the absolute number of apartment renters increasing, but so is the profile of who rents apartments, Duty explained. Renters are becoming older, more affluent and more educated. For the last two years, the fastest growing segment of apartment renters was households earning $50,000 or more. These households are part of a growing number who now choose to rent an apartment for lifestyle and not economic reasons. Nearly 40% of renters surveyed by Fannie Mae in 1999 said that buying a home was either not an important priority or not a priority at all.

Why the sudden interest in apartment living? "Changing demographics, evolving lifestyles, new public policy initiatives and changes in the apartment industry are working together to increase apartment demand," Duty noted, and she provided details on each factor.

Demographic Changes
The makeup of the American population is changing, and some of these changes are helping to boost apartment demand.

• Two of the fastest growing age groups over the next 10 years (people in their mid-20s and empty nesters in their 50s) are two of the groups most likely to select apartment living. After more than two decades of declining in number, the population in the traditional renting years (age 20-29) is expected to increase 11 percent between now and 2010.
• The second demographic factor at work is the shakeup in what constitutes the "typical household." Traditionally, that was a married couple with children. But these households have been declining in number since 1970, and now account for just one quarter of all households. In their place are a growing number of nontraditional households who are more likely to choose apartment living - childless couples, people who live alone and nonfamily/nonrelated households. In fact, in the 1990s, two-thirds of all new households were headed by single adults or single-parent families.

Public Policy Influences

• The 1997 Tax Act profoundly changed the rent versus buy decision by making the first $500,000 of capital gains on homes sold by joint filers exempt from tax ($250,000 for single filers). Freed from the prospect of a huge tax liability, more homeowners are free to consider renting. NMHC's analysis shows that apartment demand could increase 10% over the next several years due to this tax law change alone.
• On the supply side, the new interest in smart growth is making it easier to get new apartment construction approved. Suburban jurisdictions hoping to address voter concerns about traffic and pollution realize that apartments use existing infrastructure more efficiently than detached housing and that apartments can help create the pedestrian-friendly neighborhoods that voters claim to want. Urban areas realize that the lifestyle renter market is a key market to target in trying to recruit middle- and upper-income households to return downtown, and they are doing their part to facilitate new construction of high quality apartments.

Evolving Lifestyles
In today's hectic times, there are three key reasons why households that would not have previously rented are now considering apartments: (1) desire for hassle free living; (2) financial reasons; and (3) the superior amenity packages available in apartments.

Hassle Free Living
Time-pressed young professionals looking to simplify their lives and shorten their commutes and empty nesters ready to shed their house-related chores and move closer to entertainment, restaurants and shopping are helping to fuel apartment demand.

Financial Incentives
Many households want to be able to move from one job to another without incurring the cost of selling a house so they are choosing apartments. Others opt to rent so they can invest their money in the stock market instead of in a home.

Superior Amenity Package
Apartments have evolved and now, in many cases, offer a package of amenities and services that cannot be easily or affordably replicated in a single family home. Today's apartments bear very little resemblance to those built in the 1970s and even in the 1980s.

Apartments have added new amenities, new technologies, new designs and a renewed emphasis on customer-service in order to attract new classes of renters. Many of today's apartments look and feel more like single family homes. They are larger, and they include finishes such as attached garages, built-in, pre-wired entertainment centers, private alarm systems, granite counter tops, oversized Jacuzzi bathtubs, crown molding, gas fireplaces and more.

For today's time-pressed residents, a single call to the on-site concierge can arrange babysitting, housekeeping, pet care, grocery shopping or a night on the town. High-speed Internet access, on-site fitness centers, cyber cafes, business centers, movie screening rooms, billiards rooms and more make apartment living very competitive with single family living. And then there are the new e-commerce capabilities of many apartment communities, such as online apartment leasing, rent payment, resident chat areas, and maintenance service requests.

Finally, in contrast to the mom and pop apartment owners of the past, many of today's owners are large public and private firms who have invested in properties for their long-term potential and not their short term tax benefits. These owners have made getting and keeping residents a highly professional endeavor, instituting things like 30-day no risk trial periods, 24-hour maintenance request guarantees, flexible lease times, even rent-to-own programs.

There are a growing number of young professionals, single households, single-parent households and empty nesters looking for a simpler lifestyle, and they are choosing apartments. Going forward, we can expect residents to continue to get more sophisticated and more demanding. And we can expect apartment providers to provide new and innovative services, designs and technologies to meet the core needs of these households.

Originally presented to the National Association of Real Estate Editors June 2000 conference. Presentation updated July 2002.