BOSTON-It’s been said time and again over the past few years that demographic trends will favor the rental multifamily market in the near future. Yet even with a wave of young adults entering the workforce, the large cohort at the other end of the demographic scale—baby boomers—will likely serve to keep the homeownership rate steady. At least, that’s the contention of Gleb Nechayev, vice president and senior economist with CB Richard Ellis’ Econometric Advisors Team here.
The likelihood of owning a home increases according to age. Accordingly, three-quarters of households under the age of 25 choose to rent, whereas 83% of households ages 70-74 and 80% of households aged 60-64 own their residences—around the same level as middle-aged households. The homeownership rate has been on a steady incline since the early 1980s; in fact, more households over the age of 60 own homes today than they did 20 years ago, even after the implosion of the housing market.
While demographics do play a role in this increase, other factors, such as the fluctuations in the credit markets, tax codes, inflation expectations and investment strategies, also impact one’s propensity toward homeownership, points out Nechayev. So in all probability, the accelerating foreclosure rate and tighter lending conditions will help push the homeownership level a bit lower, at least in the near term.
But that will be countered by the growing population of baby boomers. Citing projections from the 2009 State of the Nation's Housing reports, published by Harvard University's Center for Housing Studies, Nechayev notes that households aged 65 and over will be the fastest-growing group, expanding by more than 910,000 annually between 2010 and 2020. Those aged 55-64 will grow by 380,000 to 400,000 per year over the same period. Overall annual household formation over the decade will be between 1.25 million and 1.48 million, depending on immigration trends. As a result, says the economist, a larger share of the household formation over the next 10 years will consist of older Americans.
“Even under the assumption that their age-specific homeownership rates will remain where they are for the entire period, the sheer increase in the number of older households would push the overall homeownership rate by as much as a full percentage point,” he says. “Baby boomers remain the major demographic force supporting the nation's homeownership rate,” continuing a 30-year trend.
That’s not to say the younger households, particularly those between ages 25 and 34, will have a minimal impact. Positive growth in that cohort will certainly favor the rental multifamily market; it’s just that their parents will have a greater impact on the overall housing market, in terms of both ownership and rentals.
“Seniors will be the largest consumer of housing for years to come,” says Nechayev. “With the affordability of homeownership still near record highs, the substantial homeownership rate declines that some expect would only make sense in the context of a truly negative economic scenario.”
Unless we get hit by another major crisis, the national rate of homeownership will fall a bit before stabilizing and then will ultimately rise again—a trend that will benefit the apartment sector. “Older people seeking homes with lower maintenance and taxes and better commutes will support owner demand, which in turn would help to lift home prices, and subsequently rents, from the low levels of today,” says Nechayev.
Thus, those in the multifamily sector would do well to cater to both ends of the demographic spectrum when planning, building and marketing their properties.
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