More seniors born after 1931 are choosing to stay in their homes longer by aging in place, according to Freddie Mac’s December 2018 Insight report. This means they are holding on to their single family residences (SFR) longer than previous homeowners of the same cohort.
Freddie Mac estimates these senior homeowners account for about 1.6 million homes that would otherwise add to the country’s housing inventory pool. The U.S. economy is also about 2.5 million homes short of meeting long-term demand. These figures are troubling but familiar specters for California, which has struggled to meet housing demand for years.
How seniors are aging in place
The Insight report cites healthcare service and technological advancements as reasons seniors may be staying in their homes longer. Telehealth solutions like remote monitoring devices and virtual doctor visits make living at home a more feasible option for aging populations.
The average life expectancy for Americans turning 65 has grown to around 86 for women and 84 for men, according to the University of Southern California. Coupled with improving healthcare services and technology, this translates into more years of independence and delayed downsizing.
Seniors are not the only cohort who stand to benefit from lower barriers to aging in place. Baby Boomers are expected to follow this trend, exacerbating California’s housing crunch. The only way to meet this long-term housing demand is by subsidizing low- and mid-tier home construction.
This trend is throwing a wrench into Millennials’ plans. Young adults whose maturing careers are empowering homeownership are nonetheless having to delay their plans because of low inventory and high prices. Homeownership dropped even as the number of potential first time homebuyers (typically aged 25-34) rose.
An additional 3.4 million Millennials would be homeowners if not for this countrywide trend, according to estimates by the Urban Institute. Their only resort to delaying homeownership is becoming renters. These prospective homebuyers forced out of the market by high prices and low inventory will turn to the rental market only to encounter the same issues, since rental prices are ballooning in response. This is because California rental vacancies dipped to 4.4% in 2018, well below their historical equilibrium.
Build, baby, build!
To be fair, housing inventory has been rising—but not where it’s needed most. Inventory climbed across the state in 2018, according to data from Zillow. However, it was concentrated in the high tier and was not due to new construction, but rather discouraged homebuyers leaving homes on the market longer.
If California’s housing crisis is to be ameliorated, new inventory needs to come from home construction. Construction starts for SFRs rose in 2018, but this rate of increase is down from the previous year. When compared to the 150,000 SFR construction starts achieved in 2005 at the height of the boom, the 62,600 starts in 2018 are only a fraction of what is needed to meet demand. Looking ahead, construction is expected to continue slowing through much of 2019.
Seniors’ decision to say in their homes for longer is not the only issue aggravating the housing crisis; it is one of many factors creating a perfect storm for low- and moderate-income households. Without the sales volume low- and mid-tier homes generate for agents, there will be fewer fees to go around unless new home construction picks up.
Agents — are you seeing fewer seniors willing to downsize in your neighborhoods? Leave your thoughts in the comments section below.