Demographic Challenges and Opportunities for U.S. Housing
Demographic Challenges andOpportunities for U.S. Housing Rolf Pendall and Lesley Freiman, The Urban Institute Dowell Myers, University of Southern California Selma Hepp, National Association of Realtors®A special thank you to Bipartisan Policy Center Housing Commission forfunding the study. Thanks to all reviewers, including Peter Burley and PaulBishop.
6 Key Demographic Trends1. Growth in the 65+ population will create new demands for affordable, accessible housing2. Seniors will contribute increasingly to housing supply3. Echo Boomers represent a long-term opportunity, but are struggling in the economic crisis4. The next two decades in housing markets depend on the Echo Boom5. Rental housing demand is likely to climb in coming years6. Black and Hispanic Americans have suffered significant setbacks in homeownership
Growth in the 65+ population will create new demands for affordable, accessible housing• Over the next 20 years, the aging of the Baby Boom generation will cause the senior population to grow by 30 million• Disability often affecting most seniors will make staying at home a challenge, though majority of older Americans want to “age in place” – Because near to family, safety, affordability, remain independent and in a convenient location – top reasons cited in AARP survey• 85% to 88% of seniors live in traditional private residences, only 5% in group quarters, and 10% in senior facilities• Many have serious affordability issues and federally assisted housing needs exceed available subsidies• Seniors occupy dwellings that are not adapt for mobility impairments, also over-housed, isolated, and will need support to maintain their independence and quality of life
Seniors will contribute increasingly to housing supply• Seniors release much more housing than they absorb - Net release when move in with children, move to senior facilities, and when people pass away• 2000-2010, people 55+ released net 10.5 million housing units. During same period, 14.7 million new dwellings, and new households under age 55 grew by 21.8 million – net household creation was 11.2 million• The location of dwellings released among and within metropolitan areas is not likely to align perfectly with future demand• Owner-occupied units will account for 80% of the releases, single-family detached dwellings• Most of the senior releases built when energy was inexpensive, nuclear families, rising incomes, and mortgages were predictable to obtain• Senior’s consumption of new housing units may rise, whose wealth and income higher than previous generation – but depends on their ability to sell current residences
Echo Boomers represent a long-term opportunity, but are struggling in the economic crisis The Echo Boom – Millennials (age 15-29 in 2010, 62 million)• Racially and ethnically diverse• Confident, connected and open to change – Higher % with college education than previous generations, and single and never married• Hit hard by the recession – no real income growth, median income dropped 9%, had to move in with family, household formation dropped, homeownership declined, student and credit card debt• But, relative to their parents, stand to benefit more from wealth transfers both because there are fewer children per parent and because their parents’ average wealth, even after the hit taken in the 2000s
The next two decades in housing markets depend on the Echo Boom• Future demand estimates can be attributed to different rates of household formation for Echo Boomers.• People 15-34 would form 15.6, 17.1, and 18.8 million new households between 2010 and 2020, in low, medium and high scenario.• Older households are less sensitive to differences in economic assumptions, ranging from 10.6 million in the high scenario to 11.6 million fewer old households in the low scenario.• Three scenarios produce vast differences in share of renters- 40% homeowners in low, 55% in medium, and 67 percent in high• None of the scenarios indicates overall homeownership rate below 60%
Rental housing demand is likely to climb in coming years• Distressed homeowners will continue to seek rental housing• The situation is exacerbating the shortage of affordable apartments• Echo-Boomers, sheer size of them, faced with same tight rental market and economic uncertainty, also seeking rentals• Future rental demand highly dependent on future economic conditions
Scenario Development• Based on age- and race-specific transition rates from 1990s (higher) and 2000s (lower), 3 scenarios were developed• LOW SCENARIO assumes transitions rates from the lower of the two decades persists in the next two decades – Continued economic struggle and difficulty in obtaining homeownership• HIGH SCENARIO assumes higher transition rates – Economic recovery and improved access to homeownership• MIDDLE SCENARIO assumes the average transition rates of the two decades
Projected change in owner-occupied households, 2010 to 2020 Scenarios’ range attributed to different rates of household formation among the Echo Boomers Net 3.8 million Net 7 million new Net 10 million new new homeowners homeowners homeowners
Projected growth in owner-occupied and renter- occupied households, 2010 to 2020 Almost the entire rental demand from Echo Boomers, but after 2020, they are likely to transition into homeownership
Concluding thoughts• The scenarios show that the implications of demographic trends for housing in the U.S. are very fluid.• A large new generation is only beginning to think about household formation and homeownership, while the largest generation ever, of seniors, is about to begin a substantial sell-off.• Decisions about the shape of housing policy in the U.S. – particularly the finance system and tax incentives for owner and rental housing - will have a large effect on the shape of the future U.S. housing market.
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