One year ago, I evaluated the changing face of U.S. housing demand — looking a decade ahead. A key finding was that aging baby boomers age 75-84 can be expected to represent the #1 source of net housing demand across the U.S. through to 2029. That year ago blog is available by clicking on this link for:
The Changing Face of U.S. Housing Demand.

This current post carries that analysis one step further — addressing the question: What then will be the changing face of housing demand two decades ahead? The story-line for the next two decades might best be summed up as housing famine, then feast.

Three preliminary conclusions emerge from considering U.S. housing needs not just over the 2020s, but into the 2030s:

The housing market will be whipsawed by the aging and then dying baby boom generation over these two decades — with extraordinary demand in the 2020s followed by a potentially glutted market in the 2030s.
Addressing the rapidly changing dynamics of baby boomers will help to smooth market function for other age cohorts — especially the large millennial cohort who today are scrambling for affordable and increasingly family-friendly housing.
Finally, shifting to a mix of more rental and less ownership product can facilitate more efficient market response than likely will otherwise be possible.

Review of 2019-29 Forecast

As noted, the #1 finding of the earlier analysis covering our current decade is that aging baby boomers age 75-84 represent the single largest source of net household growth from 2019-29. As illustrated by the following graph, this older boomer cohort age is followed by younger boomers age 65-74 as the 2nd largest source of housing demand (by age of householder).

Note: This forecast assumes in-migration to the U.S. represents a 3.4% increase in population each decade. A similar assumption is applied to the 2029-39 projection below.

Taken together, those age 65-84 can be expected to account for an estimated 94% of the net change in housing demand — for an added 9.7 million households nationwide — over this current decade. Millennials age 35-44 represent 26% of added household demand. Other working age adult cohorts of those under 34 and those 45-64 represent flat or declining shares of U.S. housing demand.

So, What About Two Decades From Now?

From 2029-39, the U.S. housing market takes another abrupt turn — as illustrated by the following graph.

Three key findings are of note:

Over a 2-decade horizon, all household age cohorts (except those millennials who are by then age 45-54 and a small number of those under 34) will represent declining household demand. Baby boomers who all will be passing through their 70s and 80s will no longer represent a source of household growth as those who graduate into this age cohort will be offset by generally older counterparts facing mortality. Retirees age 65-74 will represent the largest reduction in net housing demand as the previously large cohort of aging baby boomers is offset by a much smaller population of maturing Gen X householders.
Total housing demand will shrink from a need for an estimated 9.7 net new housing units in the current decade to a net reduction of 2.6 housing units in the following decade of 2029-39. If this scenario plays out consistent with current demographic trends, the nation’s current housing shortage will be replaced by housing surplus.
Finally, as visually depicted below, the housing surplus that emerges from 2029-39 can be expected to be greatest for owner-occupied units — while rental demand two decades out remains essentially flat.

Implications

Detailed discussion was provided by my prior blog post of implications of the 2019-29 housing demand shift now underway. What are we to make of the initial outlines of what might emerge in the following decade of 2029-39? And how are these two decades to be addressed in their totality?

First and foremost, it is clear that the U.S. housing market will be whipsawed by the aging and then dying baby boom generation (those born from 1946-64) over these two decades. Potentially exacerbated by renewed inflation and increased interest rates, it appears increasingly challenging to keep up with extraordinary housing demand now being experienced through the 2020s — only to be followed by market glut in the 2030s. Making these market transitions less abrupt and financially wasteful should be an objective of both private industry participants and public sector policy initiatives appropriate now and in the years ahead.

Second, addressing the unusual dynamics of the now intense followed by fading baby boom dynamic will help to smooth market functionality for other age cohorts — especially the also large grouping of millennials who today are scrambling for affordable and increasingly family-friendly housing. The sooner that boomers can be enticed out of large single family home-ownership product into other existing right-sized and/or new innovative senior housing offerings, the easier it will be to serve other market demographics with less risk of long-term single-family residential overbuilding.

Third and finally, while home ownership likely will remain an important part of the American dream for generations to come, shifting to a mix of more rental and less ownership product can serve to facilitate more efficient market response than would be otherwise possible. Rental housing fits more with an ever more urban demographic profile of the American housing and can more rapidly be built, adapted from other uses and/or removed from the housing inventory in response to changing market conditions than single-family ownership product.

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Also note: A listing of and links to past blog posts is available at:
Blog Post Listing.

Much is made of the inadequacy of housing supply to meet the full range of housing demand or need in the U.S. This blog post addresses one often overlooked but key facet of changing housing demand over the current decade … housing need by age cohort of the U.S. population.

Start with America’s Aging Population …

As depicted by the following graphic, the U.S. population of persons from age 15 to 64 appears fairly evenly distributed across five age groups — of 10 years each. As of 2019, the largest single age cohort comprised of 46 million millennial adults age 25-34. This was followed by a 42 million portion of baby boomers age 55-64 — with lesser proportions in the 15-24 and 35-54 age brackets. Proportions of those 65 and over are considerably less, though the 65-74 age group is now expanding rapidly with aging boomers. But this apparent first glance sense of overall calm is best by not as clearly seen market turbulence.

Note: Source data is from the American Community Survey (ACS) as of 2019, conducted by the U.S. Census Bureaau.

Fast Forward a Decade …

The next graphic advances the analysis in two respects:

Comparing the adult age distribution in 2019 versus what can be expected by 2029 (starting with the under 34 cohort, then advancing in 10-year groupings up to the most senior cohort of 85+)
Making the comparison in terms of households rather than population (by age of adult householder)

Age cohorts with more households by 2029 (than in 2019) include those with householders age 35-44 (a good portion of the millennials) and with the aging baby boomer cohorts of 65-74 and 75-84.

There is also emerging growth in the number of of those age 85+. Other age cohorts — notably householders under 34 years of age and those age 55-64 — will be shrinking in numbers but with the 45-54 being populated now by the Gen X group remaining relatively unchanged in numbers from 2019-29.

What This Means for Owners & Renters

It’s no surprise, but householders tend to transition from being renters to owners as they get older and, generally, wealthier.

Rates of home-ownership peak out at just under 80% in the 65-85 age brackets, declining thereafter. At ages 85+, more seniors drop out of the ownership/renter categories all-together, shifting more to group quarters types of living arrangements including assisted living and nursing home facilities.

Other Factors Affecting Housing Demand

This age-cohort model not only advances those in one generation to the next (with the passage of time), it also takes into account in-migration to the U.S. and mortality (which increases at an ever faster rate for those 75+). Annual age-specific mortality is relatively low, below 1% per year for householders up to age 64, then increasing to less than 2% for those 65-74, to over 4% per year for those 75-84 and to more than 13% per year for those 85+.

For purposes of this analysis, in-migration to the U.S. is assumed to represent a 3.4% increase in population each decade. This is the add-on to pre-existing population experienced as a result of in-migration from 2010-19.

Resulting Housing Demand by Age Cohort

What this means for housing demand over the 10-year time frame is illustrated by the final graph in this blog post. Here’s where the rubber hits the road.

In change unprecedented for America, aging baby boomers age 75-84 can be expected to represent the #1 source of net change in housing demand across the U.S. through to 2029. Increasing demand is next strongest for those younger boomers 65-74. Taken together, net new demand from those in the 65 and over groups may account for 10.3 million more units of housing than was required for households in these age age 65+ cohorts 10 years previously. This represents a stunning 106% of the total estimate of 9.7 million added housing units likely needed across the U.S. from 2019 to 2029.

As noted, summing across all age groups, housing demand is estimated at approximately 9.7 million added occupied housing units required between 2019-19, equating to a need averaging 970,000 new units per year (not counting normalized vacancy). This exceeds the average of about 900,000 housing units constructed across the U.S. per year over the 2009-19 period.

Millennials represent 2.5 million units (or 26%) of net added housing demand over this decade, with seniors 85 and over constituting another 1.2 million (or 12% of the increase in housing unit need). Taken together, the demand of boomers, millennials and the oldest seniors adds up to more than 100% of added housing demand nationwide. How can this be?

This occurs as householders age 55-64 will need 2.2 million fewer units than those in that age bracket 10 years earlier. This is because the 55-64 age bracket is transitioning from numerous younger boomers (in 2019) to far fewer Gen X householders by 2029.

Also noted is that the under 34 age cohort represents a figure approaching one million fewer householders in 2029 than in 2019 (as numerous younger millennials are replaced by a smaller number of Gen Z householders). And the age 45-54 cohort will represent a cross-over grouping with numbers of householders likely to be little changed over the coming decade.

Summing across all age groups, over 70% of net added housing demand is projected to be for homeownership housing product — with less than 30% for new rental units. As has historically been the case, rentals can be expected to represent the majority of units in demand change for a (shrinking) younger than 34 age cohort and an (expanding) 35-44 age group increasingly oriented to ownership. Homeownership dominates at all other age categories — including those 85 and over who have not transitioned to group living arrangements.

Perhaps the most remarkable observation overall is that 106% of net added demand for housing units in the U.S. will be coming from householders age 65 and over. A negative demand (or market shrinking) of 6% is noted for householders under 65 — notwithstanding the important market presence of millennials who will be in the 35-44 age grouping by 2029. All other age cohorts under age 65 will represent minimal or declining unit demand over the 2019-29 decade.

Implications

What does all of this mean for meeting America’s housing needs? Several initial thoughts come to mind:

By virtue of their size and family-forming ages, millennials look to be the most visible new driving force in the U.S. housing market in the years ahead. As more baby boomers begin to face mortality, those currently age 25-34 are now the single largest 10-year cohort of adults in the U.S. Later than their parents, they are now forming families with more looking to own rather than rent – also now driven away from urban to suburban locales in the wake of the COVID pandemic. Inadequacy and poor affordability of available housing inventory represents the primary impediment to meeting this now exploding market demand. Whether and how this demand is met depends, at least in part, on freeing up more of the pipeline of existing housing currently in the hands of older occupants as well as creating new and innovative semi-urban product. New housing and community designs will need to be attractive to millennials preferring urban amenity coupled with family-friendly, less crowded places also offering good career opportunity.
While baby-boomers are now clearly moving to retirement mode, they will remain a potentially potent if perhaps less visible housing market force for at least the next decade. The biggest changes in the market will come from those who will be between the ages of 65-84 by 2029. The key question for this grouping and all others behind is whether and to what extent boomers will age and stay in place or move to smaller quarters – thereby freeing up family housing for younger cohorts seeking larger homes. Prior to the Great Recession of 2007-09, there was evidence of a shift by boomers to more urban and smaller quarters – as with condos. With financial collapse followed just over a decade later by pandemic, boomers appear to be more motivated now to remain in place as long as this option remains perceived as an affordable and secure lifestyle preference.
As bookends to the market makers, the smaller Gen X and Gen Z cohorts should be afforded somewhat better and more affordable housing options than their millennial counterparts. Gen Xers had the opportunity to get into the market during the economic lull immediately following the Great Recession and will be well poised to have the greatest financial wherewithal to step up to the best of what the boomers vacate over the next 1-2 decades. Gen Z may be afforded similar opportunity in the wake of the millennial flight to suburbs and smaller cities – as the next wave of denizens for urban core rentals.
While historically a small segment of the housing market, seniors can no longer be overlooked as they likely represent the fastest growing change in the market over at least the next two decades. Those age 75-84 can be expected to represent the single biggest growth of households in the U.S. through the 2020s. After 2030, the action shifts to an historically insignificant but soon-to-be a massively large cohort of baby boomers reaching age 85+ with unprecedented longevity.
In-migrants are also not to be overlooked as they constitute a swing factor of importance – especially for rental housing. In the next decade, residents new to the U.S. will be competing primarily for affordable rentals across a range of urban, suburban and rural locales. Beyond 2030, those who arrived in the 2020s will be looking to move up – shifting toward affordable home ownership when and where possible. In terms of numbers, this market segment may be impacted (either up or down) by potentially unpredictable immigration policy.
Smooth market functioning is best assured by fluid product development and marketing that proves attractive for more aging baby boomer to move and right-size rather than age in place. While understandable and often promoted by public policy, aging-in-place may represent a worst-case scenario for younger generations. The best case emerges if new housing products ranging from adult communities to high amenity urban options for independent living serve to draw more elderly out of their homes before being forced by health or financial circumstances. From the perspective of housing developers, the best options appear to be: a) more attractive and flexible residential options for boomer seniors; b) new urban-suburban and tech-focused housing for millennials, and c) continued focus on more innovative options for more units of housing affordable to those not currently effectively served by the private market.
Bottom line, get ready for radical reshaping of the nation’s housing market on a scale and at a pace unprecedented in U.S. history. Communities and developers that anticipate and shape these changes should emerge as winners in the next 1-2 decades. Laggards will be less fortunate — negatively impacting residents and sustained community vitality.

Initially posted on December 18, 2021, this article is subject to subsequent revision.
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