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September 19, 2014

Boomers' Demand Shifts to Change Real Estate

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Boomers' Demand Shifts to Change Real Estate

The aging of the nation's Baby Boomer population could reshape the United States' residential real estate market and economy in the coming years. As members of this demographic get older, many will move out of the houses where they raised families and downsize into smaller, cozier apartments, condominiums, and townhouses. 

This is a normal transition for people of such age, but it represents a potentially massive shift in the nation's housing demand. Based on demographic trends, the nation should see a stronger rebound in multifamily construction than in single-family construction in the years to come. 

Kansas City Fed senior economist Jordan Rappaport writes: "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." 

At the same time, the shift from single-family dwellings to multifamily housing will almost certainly have implications for fiscal policy, monetary-policy analysis, and possibly even local zoning codes. Rappaport comments, "Suburbs seeking to retain aging households may need to re-create a range of these urban amenities and enact some rezoning to encourage multifamily construction." He adds that the projected shift from single-family homes to apartment, condo, and townhome living will likely put downward pressure on single-family prices. 

"It will shift consumer demand away from goods and services that complement large indoor space and a backyard toward goods and services more oriented toward living in an apartment," he explains. "Similarly, the possible shift toward city living may dampen demand for automobiles, highways, and gasoline but increase demand for restaurants, city parks, and high-quality public transit." Rappaport concludes that those companies and governments that correctly anticipate such changes stand to reap the biggest rewards.

Source: "Aging Boomers to Boost Demand for Apartments, Condos and Townhouses," Wall Street Journal (Jan. 7, 2014)

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