Millennials, Baby Boomers Key to Multifamily Housing Recovery

July 2, 2015
By Lauren McCutcheon, Intern

Jordan Rappaport
Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City, discusses his recently published article about the recovery of multifamily home construction and the factors behind the change. The article, Millennials, Baby Boomers, and Rebounding Multifamily Home Construction, is available here.

Why did you choose to write about multifamily household construction growth?

Housing is one of the most important sectors in the U.S. economy. This last recession was the most severe since World War II and was quite traumatic. You had almost a literal meltdown of markets. Multifamily apartment construction collapsed, along with single family. For single-family housing, the data shows only a mild recovery.  We are at less than half the rate of construction of new homes compared to the late 1990s. It hasn't come back anywhere close to where it was before and that is a drag on the U.S. economy. It jumps out at you why the multifamily housing has soared and exceeded where it was prior to the housing crisis compared to single-family housing coming back much weaker.

How does your research relate to the recovery of the housing market since the housing crisis?

It reflects that the recovery has been very uneven across these two subsectors. You can see a very strong recovery in one, but a very tepid, weak recovery in the other. While I do think single-family construction will grow at a moderate rate going forward, its actual level will remain very low relative to historical levels for many years. So in that sense, I think single-family home construction is a shadow of its former self. Multifamily has rebounded strongly and will continue to increase for many years.

What is the main takeaway you want readers to gain from your paper?

The young adults, the millennials, have been the largest source of the rebound because they swung away from multifamily housing and then swung back, but the main source of long-term demand is coming from aging baby boomers, and that's going to continue for at least a decade.

Who does this research affect the most?

I wrote this for policymakers and for people who interact with the housing market, such as banks which lend to builders or real estate developers. They know plenty of things that I don't, but I can identify some things that could be of interest that will affect their behavior. In addition, I like to think of these articles as things that can be taught to undergraduates at college to help them understand how markets work. It's interesting how all of these things interact to shape economic outcomes. Lastly, this is meant to inform the public. So, I would like anyone who cares about the housing market or cares about the U.S. economy to read this.

Your paper focuses on multifamily home construction. Do you see single-family housing rebounding any time in the near future to the same extent?

It will increase, but at a moderate rate, in the vicinity of 10 percent per year. That isn't bad, but it isn't going to come roaring back any time soon. It will remain relatively low compared to historical levels. One thing will depend on changing tastes. If tastes change, that's going to drive construction because you're not happy with the houses that are out there. So even if the number of occupied single-family houses doesn't change, if you want different ones, construction can increase.

About the Author

Lauren McCutcheon is an analyst intern in the Community Development department at the Federal Reserve Bank of Kansas City. She will graduate in May 2016 from Missouri State University with a degree in finance and a minor in economics. Lauren is an active volunteer and enjoys horseback riding, hiking and reading.