We have been reading for several years now
about two trends that appear troubling for the housing industry – a declining
rate of homeownership and a stalled out rate of household formation. The latter has recently begun to reverse
itself as the huge millennial generation has reached maturity, found jobs, and
moved out on their own, but homeownership rates continue to decline, reaching
the lowest rate since tracking began.
Bankers Association (MBA) has just released a paper forecasting housing demand
over the next ten years. The paper, Demographics and the Numbers Behind the Coming Multi-Million increase in
written by Lynn M. Fisher Vice President, Research
Economics and Jamie
Woodwell Vice President of Commercial/Multifamily Research
Their study used
data from 1975 to 2014 a period encompassing several market and housing cycles
and the short version of its conclusion
was that “By 2024, demographic and economic changes will bring what could be
one of the largest expansions in the history of the U S housing market – 15 9
million additional households.”
of Americans will constitute the majority of adults over this ten year period,
the Baby Boomers, their children, Generation X, and the Millennials. The first and the third of these groups are
huge. By 2024 aging Baby Boomers will
increase the numbers of households headed by those age 60 and older by 12.3
million while millennials will raise the ranks of households age 18 to 44 by
4.1 million. The much smaller generation
sandwiched in between will mean there will be 2.1 million fewer households in the
45 to 59 age group than there are today.
The authors looked
at future demand for housing in three different ways:
that demand will be effected by demographic changes that are already underway;
household formation will change because of long-term societal trends and the
hang-over from the Great Recession;
changes in the distribution of homeowners and renters.
Even if household
formation remains at 2014 low rates, demographic changes alone should account
for 13.9 million new households by 2024.
Current household numbers are expected to expand by 5.5 million
additional Hispanic households, 3.4 million non-Hispanic White households, 2.4
million Black households, 1.8 million Asian and 750,000 “other”
households. Growth in the older
households will continue to be driven by non-Hispanic Whites as will the
declines in the middle group. Minorities
will drive growth among Millennial households and will positively affect
housing demand in every age group.
The authors say that if people of
different ages, races, and ethnicity all acted in similar ways demographic
changes would be less impactful but changes in age distribution translate
directly into changes in housing demand with people becoming more likely to own
a home as they age. Persons of different
races and ethnicities also interact with the housing market in different ways
and there is a marked difference in both headship (the number of households per person) and homeownership rates across these groups.
Putting these differences together creates
some counterintuitive results. For
example the low homeownership rate among Hispanics might lead to the assumption
that as that group grows its population share homeownership rates would drop
further. Yet two-thirds of population
growth among Hispanics is in the over 40 age cohort where homeownership is
above average. “All else being equal,”
the authors say, “the result will be a natural demographics induced increase in
the homeownership rate among Hispanics.”
In addition to huge generational shifts,
forecasters must confront the problems that societal changes as well as the
Great Recession have changed the trajectory of many key life stages. Compared to the early 1990s more young people
are earning college and post-graduate degrees but the increases have been much
greater among women. People are marrying
later and putting off childbearing as well but the birthrate among women over
30 has increased substantially.
If headship rates adjust and demographic
changes continue thee will be 15.9 million additional households over the next decade,
two million more than if headship rates remained at 2014 levels. Household growth will be led by 5.7 million
more Hispanic Households, 5.0 million more non-Hispanic White households, 2.4
million more Black households, 1.9 Asian households, and 890,000 more “other”
MBA looked at the two alternative
scenarios (flat headship rates v increased rates) with respect to the path of
homeownership rates, but regardless of the mix demand for all types of housing
will be strong. The authors say that one
aspect that is often ignored is that homeownership rates will also likely be
affected by shifts in demand between single family homeownership and single
There is little to suggest, the report
says, that the recent declines in homeownership is permanent or to suggest that
the recession induced rates of decline will carry forward. Homeownership rates always follow the ups and
downs of the economy, mortgage markets, and federal policies toward it.
In the first scenario, using current age
and race specific homeownership rates, the U.S. will see 10.3 million
additional owner households and 5.6 million new renter households over the next
ten years with 9.9 million more owner households headed by a person over age 60
than today. Generation X will account
for 2.0 million fewer households with a head between 45 and 59 and Millennials
will boost homeownership among 18 to 44 year olds by 2.4 million.
Under this scenario there will be 4.3
million new non-Hispanic White homeowners and 6 million more minority household
owners; 3 million Hispanic, 1.3 million Black, 1.2 million Asian, and a
half-million more “Other” households.
Demand for rentals will be affected in
many of the same ways. By 2024 there
will be 5.6 million additional renter-occupied households with 3.0 million
headed by someone over age 60. Given the
higher rentership rates among Millennials however rental households headed by
someone 18 to 44 will increase by 2.7 million households while the middle age
group of renters will decline by 100,000.
By racial breakdown Hispanics will account
for 2.7 million new renter households, Blacks for 1.1 million, non-Hispanic
Whites and Asians will each add 700,000 and Other households will increase rent
rolls by 400,000.
Under the second scenario which accounts
for demographic changes and changes in headship rates MBA projects 15.9 million
addition households that will include 12.7 million owners compared to 10.3
million in Scenario 1 and 3.1 million renters compared to 5.6 million. In this scenario Millennials play a much
smaller role in renter demand as more are drawn into homeownership.
The number of new minority owner
households will be more than one-third higher than the number of new
non-Hispanic White Households. Among
renters the non-Hispanic White numbers will decline.
The authors conclude that the changes
outlined above will flow through to changes in demand for single and
multi-family housing. The aging of the
population, in particular Millennials, will generally boost demand for
single-family housing and slow increases in demand for multi-family. Changes in headship rates will boost demand
for both types of housing but changes in age-specific homeownership rates will
affect demand for multi-family housing very little and will instead mean shifts
of some magnitude between single family ownership and single-family renting.