Freddie Mac’s February Insight illuminated a crucial piece to the housing shortage puzzle: 1.6 million more senior households are choosing to age in place than in previous generations.
On the surface, that’s a good thing, with improvements in health care, technology and education making aging in place easier. But that also equates to 1.6 million homes held back from the market through 2018, leaving less inventory for young buyers looking for their first homes.
That’s not an insignificant number by any means, according to Sam Khater, chief economist at Freddie Mac.
“For scale,” he said, “1.6 million units is roughly the same as the number of new single-family and multifamily housing units built each year, and it represents more than half of the current shortfall of 2.5 million housing units.”
Specifically, Freddie Mac looked at three cohorts of seniors: those born between 1931 and 1941, nicknamed the “Good Times” generation; the “War Babies” born from 1942 and 1947; and the Baby Boomers, who were born from 1948 to 1959.
Freddie Mac estimated that the Good Times cohort held 1.1 million homes off the market, with the War Babies keeping another 300,000 from hitting listings. Baby Boomers account for another 250,000, with that number likely to rise as more reach retirement.
In comparison, a recent Urban Institute study approximated that 3.4 million millennials are missing out on homeownership compared to previous generations.
Freddie had been keeping an eye on the growing trend as far back as three years ago.
“We actually did a survey of people 55+ back in 2016,” said Chad Wandler, director of public relations at Freddie Mac. “We asked them this very question — do you plan on aging in place? The answer is yes for a lot of them.
“So we’ve heard them say that they want to do this, and now this insight is showing that they are doing this, and doing it at a large degree.”
But when the GSE began looking into the correlation to the housing shortage this past summer, the number of homes seniors are keeping away from the market startled even Freddie’s researchers.
“We framed out an estimate for how many homes it would be, and we were a little surprised to see how large it was,” said Doug McManus, director of financial research at Freddie Mac.
Much reporting since the release of Freddie’s report has centered on the seniors’ outsized role in the housing shortage. However, according to McManus, it’s not that simple.
“I think it misses the point,” said McManus. “It’s really about supply. If you’re in a market where housing supply can meet demand, seniors staying in place is not an issue because new units can be built for millennials and Gen-Xers who want to move into those places. But in places like my hometown of Boston, it’s really hard to add new units there. In those kinds of markets, it’s going to pose a real challenge. The constraints on construction — particularly in some of the most desirable places where millennials want to locate — are creating significant barriers to increasing the needed housing supply.
“We have a growing population, so even if you ignore the senior dimension of this, we do need more units for people to live in,” he continued. “And there are a lot of markets where that is simply constrained. No matter what, we’re going to be facing this issue. It’s just that one of the factors that makes the issue somewhat larger is the fact that seniors are staying in place. But it’s really about the ability to build new units.”
Khater said as much in his remarks following the initial release of the study, when he wrote that “this further highlights the importance of addressing barriers to the production of new housing supply to help accommodate long-term housing demand.”
“How do you come up with housing development policies to allow new units to be built?” added McManus. “Part of it might be that [because] millennials prefer to live in cities, so more of the units that we develop are multifamily dwellings. Finding new solutions is where the focus has to be.”
While those solutions aren’t yet concrete, what’s clear is that seniors aging in place will continue to affect the market moving forward.
“It’s going to persist, and it’s going to get larger for a couple of reasons,” McManus said. “The cohorts where this matters are going to get larger as the Baby Boomers age. More of these homeowners are going to age in place, simply put. And there will only be more and more things available to help facilitate people staying in place — seniors are healthier, support structures are being created, there are technological innovations. They’re just going to reinforce one another.
“We’ve done some data work, and it’s pretty clear from surveys that that’s what [seniors] want to do,” said McManus. “The shortage of supply may keep millennials as renters for a longer period.”
