California’s housing shortage is no secret. Residential construction has lagged behind our state’s growing housing demand for years, especially in the low tier where first-time homebuyers usually enter the market.
But there is some hope for desperate homebuyers on the horizon: the coming tide of Baby Boomers expected to release their homes in the coming years.
The share of homes that are currently occupied by Baby Boomers which will be released on the market will steadily increase over the next two decades. However, as long as Baby Boomers are still buying replacement property, their selling behavior can’t be counted toward the share of housing stock available. That’s because while this sort of movement creates turnover — good for agents — it’s a zero-sum game when it comes to inventory — bad for first-time homebuyers.
But as Boomers age, they will more commonly move in with family, into retirement communities, to other states with more retirement-friendly prices and taxes or pass away. This gradual reduction in Boomer households will go toward propping up our state’s depleted inventory. But just how far will it go toward returning the for-sale inventory to a healthy level?
Zillow estimates 34% of U.S. owner-occupied homes are currently owned by those 60 and older. As these Boomer-occupied homes are increasingly released onto the market in the coming years, the total inventory share will rise. Here in California, the share of inventory to become available due to Boomer exits is estimated to be:
- in Sacramento, 12% by 2027 and 28% by 2037;
- in San Diego, 11% by 2027 and 26% by 2037;
- in San Jose and San Francisco, 11% by 2027 and 25% by 2037;
- in Fresno, 11% by 2027 and 25% by 2037; and
- in Los Angeles, 11% by 2027 and 24% by 2037.
For example, the number of owner-occupied units present in Sacramento’s current housing inventory is roughly 295,300 as of 2019, according to the U.S. Census Bureau. A relatively large share of this inventory will become available due to Boomer exits, equal to 12% or 35,400 units in the years between now and 2027. This will rise to 28% by 2037, for a total of 82,700 homes to be released onto the market.
How will the coming wave of Boomer exits impact local markets?
In a healthy housing market, the expectation is that a flood of inventory would dramatically reduce competition and depress home prices. But in California’s unhealthy housing market, the coming wave of homes has the potential to right the imbalance. The actual result will depend on construction.
Boomer exits to relieve construction shortage
Zillow’s analysis rightly points out that, in many metros, the coming wave of Boomer homes is roughly equal to what’s needed to make up the past decades’ construction shortfall.
Continuing the above scenario, Sacramento will see roughly 35,400 new units hit the market due to Boomer exits in the coming decade. Meanwhile, the past decade (2007-2017) has seen 32,300 more households form than construction units started. Thus, the expected Boomer inventory wave will basically be a zero-sum game in terms of total inventory numbers.
While any amount of inventory addition is positive for California’s housing market, a flat outcome isn’t enough.
For construction to return to sustainable levels and support California’s growing population, some major changes need to occur. These include:
- changing laws at the local and state level to adjust zoning and allow greater density;
- lifting parking restrictions near public transit that currently restrict growth;
- incentivizing builders of low-tier housing;
- shortening permitting times for all types of housing; and
- regularly evaluating regional housing need.
Some of these changes are already occurring through recent legislation to add more affordable housing. Therefore, expect construction to gradually pick up in the coming years. But some challenges remain, such as the current construction labor force shortage. Further, any legislative changes need to do battle with local not-in-my-backyard (NIMBY) advocates.
Real estate professionals can get involved by being vocal yes-in-my-backyard advocates. More housing is crucial to curing the inventory shortage and bolstering home sales volume.
Related article:
