The D.C. area apartment market has benefited enormously from a large influx of young, educated college graduates attracted by the availability of jobs during the recession, especially in comparison to many other markets. As a result, the region’s rental housing market has boomed, and developers have begun building many more units throughout the area.
Looking at certain demographic trends, it appears that the future apartment market is bright, given two key traits characterizing the rising echo boom generation — not only are they considered to be one of the most educated in the nation and attracted to the jobs and cultural opportunities a major city such as Washington offers, they are also likely to be saddled with high levels of debt upon entry into the workforce.
A college education costs considerably more today than it did in the past, spiking by 140 percent over the past 30 years, when controlling for inflation. A majority of those attending college, 55 percent of public university students and 65 percent of private, borrow money in order to finance the cost of education. After adjusting for inflation and the pretax salary dedicated to covering debt obligations (credit card and student loans) of about $6,000 per year, the average college graduate entry-level salary in 2010 was $2,300 less than it was in 1973.
The reality of a generation entering the workforce with debt has many implications for residential real estate. Although median incomes for those younger than 35 are 35 percent higher here than in the national average, homes are twice as expensive, despite a 27 percent average price decline since the peak of the market. Even graduates who are diligent managers of their finances will be unlikely to have the savings to buy a home for at least eight years, four years longer than someone graduating in the same year without debt. As a result, the rental apartment market appears to enjoy a deep pool of prospective renters for years to come.
There is a risk that the availability of jobs may trump other factors for the echo boomers when it comes to choosing a place to live. Should the local job market soften, perhaps as a result of expected federal spending cuts, and job growth pick-up in other lower-cost markets, new college graduates might find that moving to a region offering the combination of jobs, a lower cost of living and more affordable homeownership may be an offer they just cannot refuse.
Erica Champion is a senior real estate economist with CoStar Group in Washington.