“As the Baby Boom generation has passed through age groups and life stages, they have had profound effects on housing demand and supply.”
- The Urban Land Institute
There is little doubt that the baby boomer generation has had a major impact on the housing market as they proceed through the different stages of their lives. And they are about to go through the next stage – retirement. The opportunity that this next transition will create will be enormous. Let’s take a look.
The population of baby boomers over the age of 65 will grow dramatically over the next decade. The Bipartisan Policy Commission paper, Demographic Challenges and Opportunities for U.S. Housing Markets, released in March 2012 quantifies the surge:
“The population of Americans over age 65 increased by about five million between 2000 and 2010. Over the next 20 years, the aging of the Baby Boom generation will cause the senior population to grow by 30 million, according to Census Bureau projections. About 14.2 million more seniors will live in the U.S. by 2020; between 2020 and 2030 the increase will grow to 16.5 million.”
And a large percentage of this demographic own homes. The Center for Housing Policy recently released a study, Housing an Aging Population: Are We Prepared?, which defines the homeownership rate of this population:
“The homeownership rate exceeds 80 percent for those aged 65 to 84…This is much higher than the homeownership rate for all households under age. Moreover, the share of households with a mortgage decreases substantially with age, which helps keep housing costs affordable to those on fixed incomes.”
The report also explains that there is less of a challenge with negative equity with this particular group:
“Of the 14.5 million 65+ households that own their home outright, the typical homeowner reports having an average of roughly $150,000 in home equity. The 6.5 million 65+ homeowners with a mortgage reported higher home values than owners without a mortgage, but their mortgage debt reduces the reported equity to an average of around $93,000.”
This group constitutes a large percentage of all homeowners and has the ability to sell as negative equity isn’t a challenge.
Why Act Now?
This segment of the population is approaching retirement rapidly and must make a decision on their housing requirements. The Bipartisan Policy Commission paper mentioned above addresses this:
“Today, the Baby Boom generation is on the verge of yet another life stage shift. About 36 million “early boomers” (aged 55 to 64 in 2010) and 45 million “later boomers” (aged 45 to 54) are poised for retirement in the next two decades.
Seniors occupy increasing numbers of housing units, but people over 65 release much more housing than they absorb. Net releases of housing occur when households combine (e.g., seniors move in with their children), when seniors move into non-household residential arrangements (i.e., group quarters, including nursing homes), and when people pass away. Between 2000 and 2010, people who began the decade aged 55 and over released over 10.5 million housing units (net). Most of these releases involve owner-occupied dwellings, because seniors predominantly own their homes and more seniors shift from ownership to rental housing than vice versa.”
The paper goes on to talk about the size of the opportunity this will create:
“Depending on assumptions about the economic recovery, seniors will release a net of 10.6–11.3 million housing units between 2010 and 2020 and 14.4–15.0 million housing units between 2020 and 2030…Owner-occupied units will account for about 80 percent of the releases, and most will be single-family detached dwellings.”
In many parts of the country, housing supply is shrinking and unable to meet the demand in the market. With the baby boomers, the industry is being presented with one solution to this inventory challenge.
Reprinted from The KCM Crew.