The next housing bubble may not burst, but rather the air might slowly seep out as 21,000,000+ homes hit the market over the next two decades. Looking for someone to blame? Look no further than the guy who – in his day – walked uphill to school and uphill back home in three feet of snow. And no, we are not talking about the greatest generation; we are talking about boomers. Reporter for The Wall Street Journal, Laura Kusisto, joins Adam & Matt to discuss how baby boomers are gearing up to sell one quarter of America’s homes over the next twenty years. And, many of these homes don’t align with the newer generations’ wants and needs. What does this mean for the market? How will real estate in Vancouver, and Canada more generally, fair? And how should changing buying patterns inform urban planning and real estate investing? This episode will have you reminiscing about sock-hops, milkshakes, and hula-hoops. Stay groovy, Daddy-O!
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You wrote an article called, “Okay, Boomer, Who’s Going to Buy Your 21 Million Homes?” Why did you write this article?
An economist I often work with came to me wanting to look into the topic of what happens to homes when the Baby Boomers die. So we tweaked it to look at what happens when Boomers move out of their homes. And it totally struck a nerve with every generation, because it affects people of all ages. All of these homes will come on the market and people wonder if it will be a great time to buy.
So, will it be?
First, I’ll answer whether it will be a bad time to sell. And yes, I think it will be. Baby Boomers who built their giant dream home in the suburbs, thinking it would be a great investment might be surprised. The younger generations can’t afford it and they have no desire to live there.
So on the flip side, I don’t know if it’s going to be a great time to buy for my generation. Homes won’t be coming on the market in these really great places to live – New York, Vancouver – to the same degree. Most of the houses will be coming on the market in areas where younger generations don’t really want to live.
On shifting wants and needs in the housing market for younger generations.
People talk a lot about how millennials only want to live in cities and walkable neighbourhoods. And there is some truth to that. But it’s also driven by jobs and affordability. High-paying jobs have moved to big cities that are magnets for talent. So people have to move to these cities. Housing costs have risen much higher than wages since 2012 and many millennials have student debt and may not have a steady job. So they don’t have the capacity to buy a home like their parents may have.
People think it’s all about individual choice – millennials being flighty and not wanting to buy homes. But it’s about a changing economy and a changing housing market. It’s not as easy as it used to be to get into the housing market.
Which markets are at the biggest risk? How do you see this playing out?
We are starting to see it play out now already. We’re seeing Baby Boomers leave their single-family homes in higher numbers; two million more people are expected to leave the single-family housing market this decade over the last one. As the headline says, we’re looking at 21 million homes being vacated by Baby Boomers over the next decade.
But lots of big macro factors could affect things – like birth rates and immigration. But there’s no way 21 million homes could come on the market without having an impact.
I believe we’ll see the biggest effect in three areas:
1 – Retirement communities, like Sun City, Arizona, are places that are like paradise for your grandparents. These are not appealing places for people in their 40’s with two kids and a job. The Baby Boomers are such a massive generation that there won’t be enough people to fill these communities when they leave. Gen X isn’t as big as the Baby Boomer population and they’re not as wealthy. Gen X is a generation that has to work longer and won’t have the wherewithal to fill the spots the Boomers are leaving behind.
2 – Rustbelt communities or places in the center of the country. These are places with older populations that don’t have a thriving economy to attract young people. For example, Cleveland and St. Louis in the US. These are places with greying populations that don’t have thriving industries to attract younger people.
3 – Mini retirement bubbles within vibrant cities – for example, the Upper Eastside in New York or Berkeley in San Francisco. These are neighbourhoods that are old, that are not cool but are in places where housing is in short supply. So people will move in and flood those places as the older generation moves out. Even if it isn’t the hippest neighbourhood, young people will move in.
I have interviewed people who moved to the Upper Eastside and they said it’s the best deal in town. There might not be new restaurants but the location works.
We’ve seen that happening in the west side of Vancouver already. It’s not as vibrant as the east side communities but the location is great and prices are comparable.
Are people thinking about how to tackle this issue or are they not thinking about it yet? What needs to happen to mitigate risk?
People in the leadership in Sun City, the main place featured in my article, didn’t call and tell me that I was clueless. They actually asked to share the article and wanted to use it to plan for the future. I was really happy about that. I’m glad they took it in the spirit of forward planning. They’re not naive about this; everyone who moves into Sun City has an expiration date. So they’re trying to figure out how to remake themselves.
They won’t be the next Williamsburg in Brooklyn. For example, one person I interviewed said they won’t be putting in a rock climbing wall. So they need to evolve and attract new people without losing who they are. I think that’s something a lot of communities will grapple with.
If you’re a community with a 55 or older age restriction, you’ll have to tackle this problem. I spoke with one community who had planned to have an age restriction but decided against it. They put in amenities to attract older residents but didn’t want to restrict themselves to just the Boomer generation.
This seems to align with the NIMBY movement in Vancouver, which is mostly lead by the older community. And it has city planners banging their heads against the wall.
I visited Manchester, New Hampshire, about an hour outside of Boston. They have a much older population. So one solution for them would be to build great transit to Boston, and become a commuter city. But that would totally change the dynamic of the community. If you build transportation and apartment buildings, that changes the community and not everyone wants that. But if you want a future, you may need to adapt to those changes.
It’s going to be a long, drawn-out and painful process to get these communities where they need to be to attract younger generations.
On the larger and long term economic impact on communities.
When I was writing the story, I thought a lot about this. I think it will be a challenge for the local communities. You can see this already in those rust-belt communities where the population is declining and the house values are falling. You lose property taxes and the job force, which causes services to decline. This becomes a vicious cycle and makes it harder to attract people to the city.
I don’t think it’s a foregone conclusion. There’s hope for them to adjust but the question is, will they? If the don’t, I think you’ll definitely see a local economy that will suffer.
For the national economy, it’s very difficult to say. I don’t think it’s a surprise that the aging population and the loss of the Boomers is a long term challenge for the US and Canada economies. But there’s so many ways policy can respond to this. Immigration is a big factor. If we let in more immigrants, they can replace some of the Boomers.
Will the economy be more focused on these big cities like New York and San Francisco? And what will that mean for the disparity between these mega cities and the smaller ones?
We could end up in a situation with vibrant cities that no one can afford to live in and cheaper cities that don’t have that vibrancy. We see that already and it’s a big challenge here.