Job-growth patterns offer
insights into occupancy trends
Much has been written about millennials and their risk aversion to buying a home over the last decade. Many live
with their parents for an extended period, well beyond that of previous generations. This anecdotal sentiment has
been told over and over, but do the numbers support this claim?
As the economy has expanded, has
the apartment market moved in step
with job growth? And does the recent
growth in the housing market mean that
millennials are finally buying homes?
The answer to these questions, like so
many economic and real estate questions, is best answered with numbers.
The chart on this page shows the
growth in overall housing occupancy
per quarter divided by growth in
The chart clearly displays how the trend
in overall housing-occupancy growth
over the past seven years contrasts
sharply with occupancy growth during
the housing boom. Not only was most
of the expansion in 2004 through 2007
in owner-occupied housing rather than
rentals, but the numbers show that
occupancy grew at a rate of nearly one
unit per job gained.
The horizontal bar on the chart representing the average from 2004 to 2007 shows 0.8 housing units were occupied per added job. The average gain in
the renter-occupied sector over the period was 0.4 units per added job, and this average was buoyed by the surge
into apartments in late 2007 before the housing market crashed. From 2010 to 2017, the average overall occupancy
growth was 0.4 units per added job, and most of the gains were in renter-occupied units.
The fact that most of the gains in occupancy since 2010 were in renter-occupied units is no surprise. The housing
bust spurred significant growth in the apartment market in its wake. It also is not surprising how steady these
occupancy-to-job-growth ratios were compared to the previous period — 2004 to 2007.
What is striking in the chart is that overall housing-occupancy growth per added job jumped at the end of 2014
through 2015 to 0.7 units per job, up from 0.4 units in the previous 12 quarters. This 2014-2015 period saw the
highest job growth per quarter as well. Thus, the higher occupancy-growth-per-job-gain ratio means that
occupancy increased faster than job growth, which suggests that those newly employed were more confident
about leasing their own space than they were in 2012 to early 2014.
Since 2015, however, the trend has ebbed a bit. This may be due to a sense of apprehension about the duration of
this expansion, but this is particularly odd given that apartment construction has surged in many metros, which
has kept a lid on rent growth. Reis Inc. data shows that apartment effective rents grew 5. 8 percent in 2015 before
decelerating to 3. 9 percent in 2016 and 3. 6 percent in 2017. With slower rent growth, one would expect occupancy
growth to move at the same pace as in 2015, but it has not.
Another striking observation in the chart is the growth last year in owner-occupied units — the first in nearly
12 years — as the pent-up demand for buying a home appears to have finally cracked. Although this, along with
the decline in renter-occupied units, may look daunting for the apartment market, the recent doubling of the
standard deduction that was included in the Tax Cuts and Jobs Act of 2017 has sharply cut the incentive to buy a
home and could possibly reverse this trend seen at the end of last year.
Apartment-occupancy growth remains positive in 2018 as job growth has accelerated. Whether this reflects overall
confidence from the tax overhaul or the reduced homeownership tax incentive is not immediately clear. It is likely
a combination of the two, but the answer will inevitably be revealed in the numbers.
By Victor Calanog and Barbara Byrne Denham
Barbara Byrne Denham is an economist in the research and economics
department at Reis Inc. She previously
served as chief economist at Eastern
Consolidated and is a Ph. D. candidate
at New York University, where she
has studied economics, monetary
theory and game theory. Reach her
Victor Calanog is chief economist
and senior vice president for research
at Reis Inc. ( www.reis.com). He writes
a monthly column on property types
for Scotsman Guide. Calanog and his
team of economists are responsible
for data models, forecasting, valuation
and portfolio services for clients in
commercial real estate. Reach him
Black dash lines: Average gain in total occupied units per job added
Blue dash line: Average gain in renter-occupied units per job added
*The per-quarter change in occupied units divided by the change in employment
Source: U. S. Census Bureau, U.S. Bureau of Labor Statistics and Reis Inc.
Housing-Occupancy Growth Per Job Added*
Renter occupied units Total occupied units
2004-2007 and 2010-2017