Which generation will drive the next real estate market boom?

  • Generation Y (58%, 36 Votes)
  • Baby Boomers (42%, 26 Votes)

Total Voters: 62

New construction starts have been trending down ever since the housing bubble burst. With plenty of excess inventory on the market, bona fide real estate owned properties (REOs) and shadow inventory alike, there have not been any obvious signals of a potential rebound in the short term. [For more information on California construction starts, see the August 2011 first tuesday Market Chart, CA single- and multi-family housing starts.]

However, some niche markets in the real estate industry are showing promise. The most populous generation in the U.S. is approaching its collective golden years and will soon require senior housing, both of the retirement community environment and the assisted-living variety. The Baby Boomers represent a vast demand pool with specific real estate needs and desires, which must be satisfied somehow. [For more information on how the Baby Boomers affect the California real estate market, see the July 2011 first tuesday article, From the city to suburbia then back.]

Construction of retirement communities and assisted-living facilities in the U.S. fell-off dramatically when the market crumbled in 2008. At the zenith of the Millennium Boom, a glut of retirement and assisted-living housing saturated the market, but it was built too early to satisfy a still-latent demand.

The demand for senior-living facilities cannot, however, lay dormant for long. Such demand is expected to redouble over the next two decades as the Baby Boomers bid farewell to their 15- to 25-year-old suburban single family residences (SFRs) and seek refuge in the safer, maintenance-free environs offered by common interest developments (CIDs), retirement communities and assisted care facilities.

first tuesday take: Most Baby Boomers now live in the suburbs, as they inhabited the promised land en masse following WWII. As the Baby Boomers age and retire, many will relocate to live in smaller, more efficient spaces with enhanced amenities closer to urban centers. As populations age, their demand for housing changes.  [For more information on Baby Boomers’ demand for housing, see the September 2011 first tuesday article, Boomers will always be homeowners.]

What the Boomers want in retirement does not currently exist. Builders will have to find centrally located, under-improved parcels and build for this contingent. But many barriers still exist between builders and new projects. ‘50s-era height and density restrictions show no signs of abatement. Worse, construction lending is still tight to non-existent and excess housing inventory will remain an inconvenient interference well into 2016.

But that is the beauty of niche markets in the real estate industry — novel demand insists on innovation and rewards risk takers. City councils will soon be under pressure to get their zoning ordinances updated so the demand for intercity multifamily projects can be fulfilled. NIMBYs will complain, but with employment a long-term issue, the builders will most likely prevail.

re: “Some Builders Are Ready for the Wave of Seniors” from the Los Angeles Times