Aging Boomers Boost Multifamily MarketFebruary 24, 2014
Many baby boomers opt for maintenance-free living.
Aging baby boomers opting for maintenance-free living are propelling a demographic shift from single-family to multifamily housing, according to research by Kansas City Fed Senior Economist Jordan Rappaport.
The trend could benefit cities with good urban amenities, Rappaport said, giving cities a chance to be more competitive with suburbs in attracting residents.
The full report, “The Demographic Shift From Single-Family to Multi-family Housing,” was published in the Kansas City Fed’s fourth quarter 2013 Economic Review.
Multifamily housing starts have risen significantly, data shows.
Rappaport’s report projects that construction will increase in the short term, but slowing U.S. population growth will exert downward pressure on demand over the long haul, especially in the single-family market.
“The longer term outlook is especially positive for multifamily construction, reflecting the aging of the baby boomers and an associated shift in demand from single-family to multifamily housing,” Rappaport said.
He said that by the end of the decade, multifamily construction is likely to peak at a level nearly two-thirds higher than its highest annual level during the 1990s and 2000s.
In contrast, despite moderately strong growth by early 2015, the level of single-family construction is projected to “contract at a moderate rate,” Rappaport said. By the end of the decade, it is likely to peak at a level “comparable to what prevailed just prior to the housing boom,” he said.
The boost to multi-family housing may further contribute to a geographic shift from suburban to city living. “For cities, this offers the possibility of revitalization and the shoring up of public finances,” he said.
Rappaport said, however, to attract these aging suburbanites, cities will need to offer “significant amenities, such as safe streets, diverse retail and restaurant options, museums, and venues for theater, music and sports.”
Suburbs that seek to retain aging households “may need to re-create a range of these urban amenities and enact some rezoning to encourage multifamily construction.”
Developers say millenials also desire downtown amenities.
Developers say they have been watching this trend unfold.
“Independent baby boomers who are not ready for senior living, but don’t want to take care of the yard, are looking at urban multifamily living, where they can stay in the swing of things,” said Robert Mayer, a commercial realtor with Century 21 and a development consultant in Kansas City, Mo.
Mayer said the trend of baby boomers opting for a more carefree lifestyle parallels another trend of “Millenials who don’t want to live in the boring suburbs and instead want to live in the hip areas of the city.”
The shift could affect low- and moderate-income communities, by contributing to more sustainable, mixed-income neighborhoods. Some communities, however, might also be wary of gentrification that prices lower-income residents out of urban neighborhoods.
Even so, suburbs aren’t suffering yet. Mayer noted a burst of new, luxury apartment projects rising up around vibrant suburban retail centers, entertainment venues, schools and churches.
Rappaport’s research projects other major and long-lasting effects on the U.S. economy.
They include a downward pressure on the prices of single-family homes and a shift in consumer demand for goods and services, from those tailored to houses with yards to those more oriented to apartment living.
In addition, he said the possible shift toward city living may dampen demand for automobiles, highways and gasoline, while increasing demand for restaurants, city parks and high-quality public transit.
“Households, firms and governments that correctly anticipate these changes are likely to especially benefit,” Rappaport said.
Read the full report: The Demographic Shift From Single-Family to Multifamily Housing.
Michael Connolly and Daniel Molling, research associates at the Bank, contributed to the research paper.