Analyzing Population Change in Demand for Apartments.

Almost always the media reports hot markets in terms of those with the largest percentage increases in population. Is looking at percentage growth in population the best way to search for local market opportunities for apartment construction? Certainly analyzing demand for apartments and any product or service is more complicated than looking at one variable, such as population growth. What is important is that population change be analyzed in the most meaningful manner.

Most often the local markets with the largest growth in percentage terms are relatively small or modest in size. The top 25 local markets in terms of percentage gains over the 1990-2000 period added 7.5 million persons. This is not as impressive when one compares it to the 17.2 million persons added in the top 25 markets measured in numerical terms. Larger percentage increases are easier when moving from a smaller starting point. The amount of additional potential product demand would appear to favor the markets adding the most persons. There was some overlap in the two lists, but not that much. Only five of the top 25 fastest percentage gain markets were also on the top 25 numerical gain list.

A wide geographic mix characterizes the top 25 numerical gain list. All of the largest metropolitan areas on the corners of the 48 contiguous states made the numerical gain leaders--Boston-Worcester-Lawrence in the Northeast; Miami-Fort Lauderdale in the Southeast; Seattle-Tacoma-Bremerton in the Northwest; and, San Diego in the Pacific Southwest.

The Los Angeles-Riverside-Orange County Consolidated Metropolitan Statistical Area (CMSA) led all areas with a 1.842 million person rise in population. It placed 134th on the percentage gain list at 12.7 percent. The other three largest metropolitan areas of California also made the numerical gain list. San Francisco-Oakland-San Jose ranked 9th with a 786,000 person gain (136th place on the percentage increase list). San Diego placed 22nd with a 316,000 person gain (tied for 136th on the percentage list). Sacramento-Yolo also added about 316,000 persons to finish 23rd (56th place on the percentage list). The Los Angeles CMSA, in spite of leading the nation in population increase in the 1990s, added 1.2 million fewer persons than it did in the 1980s. The long recession in California in the 1990s slowed its growth. And the other three large metro areas in the state also had lower growth rates. Nationally the number of persons added in the 1990s exceeded that of the 1980s--32.7 million versus 22.7 million.

The metro area that placed second in numerical population gain in the 1990s may surprise you. The New York-Northern New Jersey-Long Island CMSA finished second with the addition of 1.650 million persons (177th place on the percentage gain list). The booming stock market and a general revival of its economy raised its growth from the 617,000 persons recorded in the 1980s.

The third through sixth largest population gainers in numerical terms were in the large Sun Belt Market. They were (listed in order) Dallas-Fort Worth, Atlanta, Phoenix-Mesa and Houston-Galveston-Brazoria. Three of them also made the top 25 percentage gain list. The Greater Houston CMSA was the exception, but it still placed 35th.

Chicago-Gary-Kenosha placed 9th with the addition of 918,000 persons (150th on the percentage gain list). The 1990s gain was well above the 125,000 person gain recorded in the 1980s. Economic activity improved markedly in the Greater Chicago CMSA in the 1990s.

Las Vegas, the percentage gain leader at 83.3 percent, finished 10th on the numerical gain list with the addition of 711,000 persons. California's economic problems continued throughout a major part of the 1990s as a significant number of jobs and retirees migrated to the Las Vegas area. Adding to the Las Vegas boom was the building of numerous mega casinos supported by the national economic boom.

Seven markets made the top 25 percentage growth list, but not the top 25 numerical gain list. They were relatively small markets with only one having a population of more than 500,000 persons. Naples, Fla., for example, the 2nd fastest growing market in percentage terms, had its population rise 65.3 percent over the 1990 to 2000 period to 251,400 persons. The 99,000 person gain in Naples placed it 56th on the numerical gain list. The potential demand for new apartment construction in these markets is limited. Naples did have an average of 2,642 apartment unit permits per year over the 1996 through 2000 period. The other markets had much smaller levels of activity. Their annual average for apartment permits for the same period was: Provo-Orem, Utah--663 units; Fayetteville-Springdale-Rogers, Ariz.--484 units; Boise City, Idaho 433 units; Laredo, Texas--373 units; McAllen-Edinburg-Mission, Texas 359 units; and, Yuma, Ariz.--29 units. The average annual total for all seven was 4,983 units. This is only about half of the 9,612-unit average for the Los Angeles-Riverside-Orange County, Calif. metro area.

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One can also look at the bottom of the list of numerical changes in all metro areas and still find a demand for apartment construction that exceeds that for many of the top percentage growers. The Pittsburgh metro lost 36,000 persons over the decade of the 1990s. Nevertheless, it had demand for new apartment construction. Apartment permits averaged 952 units per year over the 1996 through 2000 period. This is larger than those for all of the metro areas listed in the previous paragraph with the exception of Naples. Two factors other than population growth contributed to demand for new apartment units in the Pittsburgh metro area. It has a large and aging apartment stock and losses occur due to factors such as demolitions and fires. Also a major redistribution of population from the city to its suburbs has occurred. This has provided demand for new suburban apartments.

Robert J. Sheehan is President of Regis J. Sheehan Data and Forecasting Services in McLean, Va. and serves as NAA's Consulting Economist. He can be reached at 703/893-9185 or by e-mail at [e-mail].

Robert J. Sheehan is President of Regis J. Sheehan Data and Forecasting Service in McLean, Va., and serves as NAA's Consulting Economist. He can be reached at 703/893-9185 or by e-mail at [e-mail].