California’s Baby Boomers are holding on to their large suburban homes for longer. Is this age group exacerbating the low inventory situation by staying put well into their golden years?
The age at which senior citizens downsize into multi-family units from their single family residences (SFRs) has increased significantly. In 2005, the turning point when a senior was more likely to move to downsize was age 75 — in 2016, that turning point didn’t occur until age 80, according to Trulia.
The advancement of “downsizing age” is likely related to the fact that seniors are more likely to have members of the younger generation living with them today than a decade ago. Junior isn’t leaving the nest, so neither can Baby Boomers. Nationally, the share of Baby Boomer households with children living at home was 14.4% in 2005, up to 16.1% in 2016, according to Trulia’s analysis.
Here in California, the share of seniors who currently live in outsized homes with the potential to downsize is around 40%-50%, depending on where in the state you’re looking. The share of potential downsizers is lower in more expensive locations, like the Bay Area, and higher in less-expensive inland areas. In other words, areas of the state suffering the greatest inventory shortages have the least potential for an influx of SFR inventory once Baby Boomers finally downsize.
While reports of the inventory shortage are most concentrated surrounding the lack of low-priced homes for first-time homebuyers, the inventory gap exists across generations, impacting young and old alike.
So if downsizing Baby Boomers are unable to supply the necessary inventory to meet rising homebuyer demand in the state’s most desirable areas, where will the inventory come from?
Legislation for more inventory
California’s for-sale inventory recently bottomed at the end of 2017, hitting a generational low for all home price points. It has since increased marginally throughout 2018 as more sellers have sought to cash in on today’s high home prices and overpriced homes sit longer on the market.
However, while inventory troubles have hit all price tiers, the inventory recovery hasn’t been evenly distributed across all price points. New construction is, with rare exception, concentrated in the high tier, where builders stand to make the most profit. This is a special concern for builders in California due to the high upfront cost of land. Building a low- or mid-tier property simply doesn’t cover builders’ costs in most situations.
The only way California is going to see more inventory develop in the low- and mid-tier is through new laws that subsidize building low- and mid-tier housing.
These legislative efforts are underway in California, as 2017 and 2018 have seen numerous new laws aimed to increase building in the low- and mid-tier. These new laws include:
- prohibiting parking requirements for junior accessory dwelling units (ADUs);
- limiting fees for construction of ADUs;
- directing local governments to streamline the multi-family development approval process;
- conducting advance environmental impact reviews to speed up the approval process; and
- examining creative ways to convert public land into housing developments.
Watch for the inventory levels of low- and mid-tier homes to gradually catch up to high-tier homes in 2019. The final boost will occur with reduced homebuyer activity in 2019-2020 following an economic slowdown, which will see homes sitting on the market for longer, building up inventory to more manageable levels for all types of homebuyer populations.