As a demographer, Dowell Myers says he can predict things with certainty. Economists, he says, can barely forecast where interest rates are going over the next three months. “But I can look at someone in the audience and predict with some confidence that in 10 years, they will be 10 years older,” he joked.
In his keynote presentation at the 2009 Multifamily Executive Conference, Myers, a professor of urban planning and demography at the University of Southern California, certainly gave the audience of apartment owners, managers, and developers plenty of reason for optimism.
Showing the impending rise in the population aged 24 to 35—the sweet spot for the apartment market—Myers predicted that this will eventually lead to a rebirth of construction. He added that the industry should benefit from delayed homeownership caused by the economic recession as well.
Demographic surges primed the apartment construction pump before, Myers noted. Immigration drove a wave of apartment building in the 1930s; a burgeoning young Baby Boomer population lead to a boom in the '70s; and the early impact of the Echo Boom stimulated multifamily construction earlier this decade. In each case, the percentage of construction represented by multifamily rose.
“It’s primed to rebound again, once we get past this recession, and we can get financing. We’re going to have a surge in demand from people 25 to 34 during the next several years.”
Other housing will work to the advantage of rental ownership and construction, at least in the short term. Falling home prices, he demonstrated, don’t lead to an increase in ownership because people are afraid their investment will lose value. “Young people are not fools,” he said. “They wait for prices to stop falling before they buy.”
Beyond that, he said, younger households need to bulk up financially before they can afford to buy a home. As a result, the apartment market should benefit from strong demand.
Otherwise, Myers spent the bulk of his time talking about a “threatening” imbalance in the housing marketplace that could depress home prices for years to come. By decreasing the investment gains from homeownership, this trend may work to multifamily’s advantage as well.
The problem is that the country has too many older people who own homes and will want to sell them. And there are too many younger people without the financial wherewithal to buy them. “The future starts in 2010, only four months away,” Myers said, showing a chart that documents changing population growth for the next 20 years. “Almost all the growth is going to be retirement-age people. This is the 800-pound guerilla still haunting us.”
The U.S. Census estimates that in 2030, there will be 56 million Baby Boomers still kicking. How to service and respond to the needs of this elderly population, which paid into the Medicare and Social Security system, is one of the great public policy challenges of the age, said Myers, who has presented his findings to federal policy makers.
Myers displayed his own calculations that show that at age 60, people are more likely to sell than buy homes. “Every elderly homeowner is a ticking time bomb—they have to sell eventually,” he said.
The problem is that the younger generation is not big and wealthy or tough enough to buy the existing inventory at full price, which could lead to more deflation in home values. “We need more well-heeled buyers,” he said, adding that one solution to the problem is better education. “People with college degrees pay more for housing.”
The situation is especially acute in states such as Michigan and Ohio, where elderly homeowners are not only selling and moving on, but there aren’t enough younger buyers waiting to buy them. It’s less troublesome in the West and South, where the older population is still buying homes.
Myers suggested that, going forward, density will be the rule of the game. The apartment market will have both demographic demand and postponed buyers feeding its needs. And he showed the results of a National Association of Home Builders survey that indicates Boomers are more likely than other groups to settle for town homes in the future.
In response to an audience question, Meyers said it’s not clear how long people will delay retirement due to a drop-off in the value of their retirement accounts. Noting that this trend actually started in 1990, he predicted that people may work on average another three years to make up for the shortfall. “But no one has done a formal study,” he added.