Partners (Number 3, 2004)

Changing Demographics Drive Diverse Housing Choices

Statistics from the 2000 Census reveal a striking divergence from what has been considered the “typical” composition of the American household.

Two-parent families with 2.5 kids have been surpassed by nontraditional households that are increasingly without children and headed by single persons. The changing face of the typical consumer and household will require a paradigm shift in housing design and urban planning that acknowledges the demographic and cultural differences influencing housing choices.

One of the most significant demographic drivers of housing demand in the 1990s has been growth in the minority population. Other significant population shifts include the aging of the baby-boomer generation, shrinking household sizes, and geographic redistribution of the population between central cities and suburbs.

All of these factors interact to determine housing needs and preferences. However, it is age-driven changes in the nation’s population and its household composition that will have the most impact on the future residential landscape.

Baby boomers swell ranks of aging population
Historically, the graph depicting the life span for American adults assumed a high mortality rate in early childhood that decreased over time and a relatively small number surviving to old age. However, recent advances in medicine and health care have increased adult life expectancies so that more Americans are living longer.

The baby-boomer generation and low overall fertility rates are contributing to an aging of the population. The wave of individuals born between 1946 and 1964 is fast approaching retirement age and accounts for a large portion of the growth among older, post-childrearing age groups. According to the most recent census projections, the age group from 45 to 64 will account for 25 percent of the U.S. population in 2020.

As the number of mid-life and older Americans increases, it would be unwise to assume that housing location and design developed largely with young families in mind will suit them.

Empty nesters face lifestyle changes
One consequence of longer life expectancies is that couples have more years together after their children have reached the age of 18. Many of these “empty nesters” don’t need, and often don’t want, large, isolated suburban homes. They are poised to take advantage of new opportunities in this stage of their lives, whether by renting homes or moving to higher-density, urban neighborhoods with smaller lots.

One of the emerging markets for multifamily housing is the “lifestyle renter.” These individuals rent by choice because they want communities that fit their lifestyle and life stage. Aging baby boomers will probably drive some of this rental demand. Even though the homeownership rate for this group is very high, lifestyle preferences and changes in the tax laws that eliminate the capital gains penalty on sale of a primary residence have made renting a more attractive option for seniors.

Aging in place
The senior population, many of whom own their homes, is expected to nearly double by 2030. According to Harvard’s Joint Center for Housing Studies, nine out of ten seniors prefer to remain in their homes; this means that the housing choices made by aging boomers in the next decade will probably determine how and where they will live in the future.

Health and housing concerns for the elderly are often inextricably connected. As homeowners age and become frail, housing stock also ages and requires increased maintenance and upkeep. This is a particular burden for seniors on a fixed income faced with increasing medical needs. Efforts are underway to provide comprehensive approaches to coordinating health and housing services for the elderly that reflect this interrelationship.

Since most elderly live in conventional housing, demand will increase for housing modifications and supportive services that will allow them to age in place safely and comfortably. Age-restricted communities that also provide different levels of personal care offer an alternative for seniors who choose to move to new homes specifically designed for them.

Growth surge in nontraditional households
While the housing industry continues to build homes for young and middle-aged couples with children, a strong case can be made that new construction does not meet the needs of the majority of new and future households. The majority of the nation’s households are either married without children or headed by single persons. Longer life expectancies and marital status trends have contributed to this transformation in what has been long-considered the “traditional household.”

The aging of the population has had a significant impact on this demographic shift toward households headed by one person. The death of a spouse or divorce without remarriage both result in the same outcome. Also, most married couples with children will eventually become “empty nesters.” Aging baby boomers are approaching this life stage, thereby contributing to the continued increase in one-person headed households in the next two decades.

Marital status trends such as delayed marriage, higher divorce rates, and lower remarriage rates also account for the increasing number of one-person headed households. A consequence of this trend has been a larger number of unmarried men and women, many of whom have chosen homeownership, in the housing market.

The continued growth of this household type will increase the demand for affordable housing, both in rental and for-sale markets. Housing costs are more likely to be a financial burden for these households, which may spend more than 50 percent of monthly income on housing. The cost burden is especially high among unmarried women, given the persistence of the male-female earnings gap. Unmarried women accounted for 30 percent of the growth in homeowners from 1994 to 2002.

Growth in minority population fuels housing demand
The nation’s minority populations have expanded significantly in recent decades, with the Hispanic population increasing by more than 50 percent since 1990. This phenomenal growth has created a diverse population with a unique demographic profile and household composition. Most importantly, their housing preferences and patterns will be very different from those of non-Hispanic whites.

According to the 2004 State of the Nation’s Housing report, 1.3 million net new households have formed each year on average since the start of the decade. Largely due to immigration during the 1990s, household growth should continue this pattern for the next 10 years.

Between 1998 and 2001, immigrant households purchased 8 percent of new homes and 11 percent of existing homes sold. The Harvard study also found that the foreign-born represented 12 percent of first-time homebuyers in 2001, boosting the demand for starter homes. Their impact was even more significant in the rental market, where they represented 17 percent of all renters in 2000.

Income disparities are also evident between minority workers and whites of similar age and education. As a result, increase in the number of minority and immigrant households will spur more demand for starter homes and affordable rental housing.

Immigrant households more youthful and “traditional”
A consequence of the nation’s growing diversity is a shift in the population’s age and household composition. Differences in household composition for minorities reflect the relative youthfulness of this population. Generally, populations with more young adults have more families with children, and more closely mirror the “traditional” household. The trend toward families among immigrant populations will somewhat offset the growth of non-traditional households, but the impact on housing needs is difficult to gauge.

Minority household configurations also differ in size and type. A 2001 study by the Brookings Institution, “The Implications of Changing U.S. Demographics for Housing Choice and Location in Cities,” found that compared to majority households, minority households are more likely to include multiple generations and be headed by a single individual. Consequently, the overall trend of an aging population and households with no children more aptly describes non-Hispanic, white populations.

Minority and immigrant populations are not uniform. It is important for housing professionals to understand the unique preferences and needs of each racial and ethnic segment within their market to provide appropriate housing choices.

Shifts in housing preferences
The conventional “American Dream” home is a single-family, detached structure on a large lot in the suburbs. This preference may shift to reflect changing demographics, but the appeal of the suburbs persists. Despite a significant “back to downtown” movement in many central cities, the suburban ideal is still alive and well. Recent trends show that suburban locations remain the primary residential choice of all household types, and older households are less likely than younger ones to live in central cities.

The long-run problem for the housing industry is that the needs of traditional families, now in the minority of households, continue to dictate housing choices for the majority. New construction is often geared to the preferences of young couples with children—conventional, low-density suburban homes.

Studies have shown that density choices are driven by age and that consumer outlooks change after age 45. The lifestyle choices of baby boomers have the potential to change neighborhood patterns as they get older and as some opt to downsize to smaller more manageable homes in walkable, centrally located neighborhoods. The overall impact is hard to predict, however, since many boomers will age in place and therefore, not participate actively in the housing market.

New approaches to housing and communities
Not too many years ago housing professionals thought almost exclusively about the housing needs and preferences of families with children. America’s demographic profile is changing and dictates that we examine several housing types. Ultimately, the housing industry will need to respond with additional products that address the age, income, and cultural differences of our diverse population.

This article was written by Jennifer Grier, community affairs project manager at the Atlanta Fed.

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