Developers struggle to build apartments in busy, social neighborhoods at a price Gen Z is willing to pay.

Developers often want their new developments to appeal to the youngest renters. That may be difficult with the young people of Generation Z, now graduating from college and looking for places to live.

They are notoriously frugal. The oldest—born from the mid- to late 1990s—came of age during the long, slow recovery from the global financial crisis. They were used to living on a budget long before the new economic crisis caused by the spread of the novel coronavirus.

“Gen Z tends to value experiences more than they value things or possessions,” says Lela Cirjakovic, executive vice president of operations for Waterton, an apartment company based in Chicago. “They also place a high value on community… Spending time with people doing things is more valuable to them than having luxury items.”

That frugality might keep Generation Z away from new buildings in the most expensive housing markets—even though they are drawn to social areas.

“Land costs in the urban core likely preclude the delivery of new apartments that most Gen Z renters can afford,” says Greg Willett, chief economist for RealPage, a technology and data company based in Richardson, Texas. “Those who can afford new developments at all probably will opt for suburban settings.”

New Apartments Designed for Frugality

In October, AvalonBay Communities will open 238 new apartments at Kanso Twinbrook in Rockville, Md., near Washington, D.C.

“Kanso will be our first new development without any physical amenities or even a leasing office,” says Karen Hollinger, senior vice president of strategic initiatives for AvalonBay Communities, headquartered in Arlington, Va. “I’m not sure any one generation has the lock on frugality, but certainly there is a growing demand by a younger generation for a lower net cost housing model.”

Willett adds that research typically paints Gen Z as a practical group with frugal spending patterns. “So many of them grew up in cash-strapped households. … Housing affordability has been a challenge for the group, especially for those with substantial student debt.”

However, these young adults do require strong, fast Internet and cellphone service.

“Tech is a deal breaker,” says Cirjakovic. “On a very basic level, reliable and robust service in apartments and common spaces is critical.”

Young renters are also more likely to expect their homes to include Internet-enabled devices like smart thermostats and electronic locks. Elie Rieder, CEO of Castle Lanterra Properties, says, “Smart homes are a gimmick to previous generations but a must for Generation Z, as conservation and control are simply standard with them.”

Being frugal, these younger renters are often less likely than older renters to pay a premium of extra rent for this Internet-enabled gear. “It will be the base expectation versus a differentiator for them,” says Rieder.

Gen Z May Choose Roommates Despite Pandemic

When times get tough, young renters often double up with roommates or move home to live with their parents for a time.

“Younger cohorts are typically disproportionately affected by employment losses in recessions, a fact already reflected in the April and May job reports,” says Andrew Rybczynski, managing consultant in the Boston office of CoStar Portfolio Strategy. “We expect household consolidation for economic reasons, which could also prevent move-outs from parents’ households.”

Apartment developers had begun to build new “co-living” communities based around the idea that renters would want to share space as roommates.

“The model of large-scale shared housing fits well with a desire for lowered costs and increased socialization, but it certainly doesn’t fit well with the need to quarantine,” says AvalonBay’s Hollinger. “If financing was tough before, it just got much tougher.”

In the aftermath of the pandemic, tough economic times and the ability to work remotely may steer young renters away from the most expensive urban markets, like San Francisco and New York City. “Markets with high rents will likely suffer the most, as Gen Z decides to seek markets where they can achieve a much more favorable balance,” says Cirjakovic.

Young renters may also have less need to live near job centers. “Post-pandemic, almost anyone who is not a service provider can potentially work remotely,” says Cirjakovic.

However, these young renters will probably still want live near entertainment, dining, and other people in their age group. “Culture, connectivity, and proximity to similar people will be the draw,” says Rieder. “True walkable live-work-play locations are key. That usually means very urban.”

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