Conventional wisdom has it that swell of population growth from the "Echo Boom" generation -- children born to Baby Boomers -- would fuel household formation to benefit both rental and owner-occupied housing. At the same time, aging Baby Boomers would release a supply of housing units into the market as they die or move into other housing facilities, including nursing homes.
How do these themes play out? Four researchers, including Selma Hepp of the National Association of Realtors, Rolf Pendall and Lesley Freiman of the Urban Institute, and Dowell Myers of the University of Southern California, sought to answer that question in a recent paper.
The research shows that not all housing units and geographic regions will experience the same results. Certain states in the Rust Belt and the Northeast may see greater influence of seniors releasing housing units into the market, whereas other regions of the country may experience more rapid growth of younger households. And Echo Boomers' taste in homes may differ from that of seniors, with the younger cohort favoring smaller homes inside more urban areas. Thus, as the saying goes for housing values, it's "location, location, location."
But here are some numbers from their research on nationwide trends. Over the next 20 years, the aging of Baby Boomers will mean that the senior population will grow by 20 million people -- or from 13% to 20% of the national population -- by 2030. In response to a survey from AARP, only about half responded that their home would be able to accommodate them "very well" as they age, with 12% responding "not well at all." Still, their preference is to stay in place, with lower mobility rates than younger cohorts.
That trend is fairly intact, but the researchers view the next two decades in housing as dependent on the actions of the Echo Boom. They point to a 2010 National Association of Realtors survey that shows three quarters of renters aged 18 to 29 hope to buy a house. Echo Boomers tend to be better educated than older generations, and a greater proportion of younger women work than their older counterparts. Many of them are still living at home or with other relatives or roommates, and new household formation can absorb the supply of both housing units released by seniors and new construction.
Still, many of them have been hit hard by the recession, with high rates of unemployment and a lack of wage gains preventing some of them from growing their savings for a down payment or qualifying for a mortgage. High rates of student loan and credit card debt are further obstacles. Fewer of them are married than previous generations were at their age. That means there is a greater potential for newly married couples to occupy a new house in the future -- assuming that marriage and starting a family is indeed their preference.
Because these variables depend on the unknown outcomes of both the economy and individuals' preferences and situation, it can be hard to predict how many new households will form, and how many will buy vs. rent. We need to estimate how many new households younger people will form, offset by the decrease from older people dissolving their households.
Under the low scenario, 9.7 million net new households would form between 2010 and 2020. The medium scenario would result in 12.3 million households. The high scenario, finally, yields 14.9 million new households. (These net figures subtract the effects of seniors dissolving 10.6 million to 11.6 million households.)
Coupling a range of various scenarios of different homeownership rates with these new households between 2010 and 2020, the researchers see 3.8 million new owner-occupied homes for the low scenario, around 6 million for the middle scenario, and a net 10 million net new homeowners for the high scenario. The homeownership rates for new households in the three scenarios range from 40% in the low to 67% for the high scenario.
Thus, it is difficult to predict accurately just how the generational effects of new household formation will affect housing. In a low scenario, we might have an excess supply of homes in some areas, according to the researchers, or we might not have enough, depending on the interplay of a number of different variables.
Still, the researchers discount the idea of a "rentership society," as none of these scenarios produce an overall homeownership rate less than 60% before 2030. That is good news for builders, but how much good news depends on how these variables play out. And remember, real estate is always a local market.