The Bipartisan Policy Center — a think tank based in Washington DC once described as the place “where moderate Republicans go to embrace their inner liberal” — has released a new study in conjunction with NAR, the Urban Institute, and USC that is worth reading in full if you’re interested in topics like future of housing. Entitled “Demographic Challenges and Opportunities for U.S. Housing Markets“, it is a thoughtful academic treatment of the impact of demographics over the next couple of decades.
The key takeaways:
- There will be a lot more old people in the next 20 years.
- Old people sell houses
- Young people buy houses, but current crop of young people (Millenials and younger) are suffering
- Black and Hispanics hardest hit
Most of the paper, actually, is restatements of the obvious, such as “Over the next two decades, the U.S. housing market will depend on Echo Boomers”. You don’t say! Since Gen-Xers like me are in our 40s, 20 years from now, we’ll be in our 60s and looking forward to retirement (if such a thing exists by then). Who knew that the largest cohort since the Baby Boomer would be important to housing?
Nonetheless, the study concludes, “Notwithstanding predictions of a coming “rentership society,” however, none of the scenarios indicates a reduction in the overall U.S. homeownership rate below 60 percent before 2030.” (p. 18) The authors project that somewhere between 21 million and 25.5 million new households would form between 2010 and 2020:
The range of estimates in these scenarios can be attributed to different rates of household formation for Echo Boomers. Under the low scenario, people between 15 and 34 years old in 2010 (a span that includes Echo Boomers plus five years of the Baby Bust generation) would form 15.6 million new households between 2010 and 2020. Other cohorts would account for the formation of an additional 5.4 million households over the same time period (Figure 1). The medium scenario would result in 17.1 million new Echo Boomer households and 6.1 million other households. The high scenario, finally, yields 18.8 million new Echo Boomer households and 6.7 million new households from other generations. (p. 15)
And homeownership rates among these new households, the authors figure, would range from a low of 40% to a high of 67%, adding anywhere from a low of 3.8 million new homeowners to a high of 10 million from 2010 to 2020. (p. 16)
Although the authors do not make any recommendations for policymakers, it does seem to me from the overall narrative — the elderly will need lots of help, the young are being crushed financially, and black and Hispanics were hardest hit — that the paper is intended to spur government action to subsidize housing. Which, as a fan of the industry and all, I’m happy to consider, of course.
But there are three trends and factors that are simply not discussed in the paper, all of which have been much in the news of late. That glaring oversight makes me wonder if these projections are not wildly optimistic. Since I’ve been dabbling in the whole demographics angle — especially of Millennials — I figured, I should point those out and see what people thought.