Surge in Baby Boomer Rental Demand
Baby boomers spending habits have driven the economy for 6 decades. And even though they are at, or nearing retirement age and slowing down on spending, they are still influencing the economy… in unexpected ways.
Landlords at a recent conference for rental housing say there's a "surprising surge" in the number of older people choosing the life of a tenant over homeowner.
Real Estate Consultant, Jeff Kottmeier says there was a big buzz about older renters at the recent National Multifamily Housing Conference. He heard from a number of landlords who say many applicants are older people who have sold their homes and want to rent a luxury apartment that's within walking distance of shops, restaurants and entertainment.
Realtor.com’s chief economist, Jonathan Smoke says walkable urban centers and college towns are seeing some of the highest growth from baby boomers moving in.
They tend to like condos near restaurants and shops, cultural venues, and places where they can take classes and stay active.
“The interesting trend is that the places where many young people want to live are the same places where many retirees want to live,” Smoke says.
As a result, builders are constructing more downtown living style condos specifically for seniors, according to Isabell Kerins, a director of product and business development at John Burns Real Estate Consulting.
Developers are also creating more “urban suburbs” to appeal to boomers who want the urban lifestyle but don’t want to move into the city core. For example, some builders are looking to create walkable areas in suburbs with condos near restaurants and retail stores to appeal to baby boomers' urban desires.
Chief Demographer, Chris Porter at the John Burns Real Estate Consulting firm says that 80% of early, or older, baby boomers still own their own homes. But he says an analysis of homeownership trends indicate that even among older baby boomers, a percentage of them will transition from owning to renting.
The U.S. Census Bureau says there are 8 million people ages 55 to 74, who are currently heading their households. So even a small percentage of that number transitioning into rentals, could have a substantial impact on the rental market.
Some researchers say that most seniors would probably "prefer" to stay in their homes but are having a tough time holding on to them. According to Rolf Pendall of the Urban Institute, he's noticed a decline in the number of senior homeowners since about 1990 with a big drop during the financial crisis.
He says seniors who own their homes will continue to outnumber seniors who rent, but the number of older renters will likely accelerate over the next 15 years. He and his colleagues are anticipating a growth of senior homeownership from about 20 million in 2010 to 33.7 million in 2030.
For senior renters, they predict a rise from 5.8 million in 2010 to 12.2 million in 2030 - that's double the number of senior renters today.
This data is very important for builders and real estate investors. If their prediction is correct, the nation will need 6.4 million rental units to accommodate this rental demand among aging seniors.
Why would a senior choose renting over owning?
Tight credit standards and mortgage underwriting are a few of the issues that could prevent Baby Boomers from buying property. Rising rents and stagnant wages are a few more possibilities. And for seniors on a fixed income, keeping up with a hot housing market may be next to impossible.
Plus, if a 60 year old Baby Boomer buys a home on a 30 year fixed rate mortgage, he or she would own the home free and clear by age 90. The only benefit at that point is being able to provide a home in inheritance.
That’s not quite as enticing as buying a home at age 32 - the typical age for buying one’s first home.