How Many Renters Live in Small Apartment Buildings?

Americans living in small apartment buildings outnumber renters in large properties more than three-to-one.

In thinking about the trends that are shaping the rental apartment market, investors have tended to focus their attention on high-rise buildings in the urban core. This has been especially the case over the current cycle as Millennials have emerged as the largest demographic cohort.

In 2015, there were 83.1 million Millennials (people born between 1982 and 2000) living in the United States. In comparison, Baby Boomers numbered 75.4 million. Millennials are overwhelmingly renters and are generally viewed as highly urban. They also prefer buildings with a rich set of amenities. That invariably means larger properties with a critical mass of residents.

While the steady demographic shift to Millennials implies much stronger demand for larger properties, the most recent data tell a different story. Based on 2015 mortgage data from Chandan Economics, occupancy rates at small properties are only slightly lower than that of larger properties. As it turns out, the share of renters living in small properties has increased slightly since the beginning of the market recovery in 2010.

Of the more than 37 million people living in small and large rental properties in late 2014, the vast majority were in smaller buildings — those with between 5 and 49 units.

As shown above, 76 percent of multifamily renters (which we define as those renters residing in at least a 5-unit property) live in small properties, outnumbering renters in large properties three-to-one. In fact, most renters live in properties with fewer than 20 units.

More telling than the current large and small property shares of the market, the rate of growth in the small property population has increased, from an annualized 1.6 percent between 2006 and 2010 to 2.0 percent between 2010 and 2014. As shown below, the growth rate of residents in large properties has actually slowed.

In a future post we will examine the basis for the stronger small property trends, including demand from suburban homeowners who may have been displaced during the housing downturn.