Demographic Changes That Will Impact Real Estate

Demographic Changes That Will Impact Real Estate

As the years progress, audiences change, and this includes target audiences. When you work in residential real estate, your entire region serves as a target audience, so the best way to measure changes in that audience is to look at changes in the demographics.

While every region has its own unique shifts, the United States as a whole has its own trends. These nationwide demographic changes will impact local residential real estate over time. Richard Fry, a researcher at the Pew Research Center, decided to investigate these nationwide trends to determine how residential real estate will be affected. Specifically, he projected what the state of the industry would be by the year 2065.

Current Demographic Changes

Current Demographic Changes

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Through his research, Fry was able to find 5 demographic changes that will impact what housing units residents are willing to spend their money on, and why. In no particular order, here are his findings:

 

  1. If you are looking at demographics decades into the future, then present birth rates will naturally have a significant impact. Currently, young Americans are not having children at the same rate as the generations that came before them.

    In 1980, 43% of women 18 to 29 had at least one child. Today, that number has dropped to 30%.

    Millennials are waiting to have children, and this directly impacts the types of housing units that will be in demand in upcoming years. This also affects where those units will be purchased or rented.
    downtown assets
  2. Currently there is a trend that shows that Americans and many millennials are moving away from the suburbs to live in the city. This is also impacted by millennials waiting to have children. This focus on work will decrease demand for suburban housing, and increase the traffic towards city apartments.

    Demand could bolster the market’s already-frothy prices for downtown assets, and perhaps discourage some development in the suburbs.

    When more millennials do begin to start families, it is possible that this trend reverses. For now, however, urban growth is worth the investment for the years leading up to that potential family formation.
  3. Birth rates don’t just impact where people choose to live; they also impact household size. Around the country, household sizes are increasing. Not only are millennials not having children as easily, but with economic hardships increasing foreclosure rates, families find themselves living together under one roof. Students and graduates are continuing to live at home, and older parents are moving in with their adult children.

    An increase in average household size is much of the reason why demand for new housing has been so sluggish, even as the wider economy has recovered.

    With families coming together like this, demand for new homes naturally decreases. However, if you are in the homebuilding business, homes that can accommodate multiple generations will help facilitate these new family dynamics.
  4. While studying current Americans can provide insight into future changes to residential real estate, there are also benefits to looking outside the United States. Currently there are over 350 million Americans in the US, but Fry predicts that the population could grow to 441 million by 2065. Fry attributes this growth to immigration.

    Taking middling, reasonable assumptions about immigration – 1 million immigrants per year – the American population should grow to 441 million by 2065. Now let’s suppose we switch off immigration…By 2065, we would only have 338 million Americans. Without immigration, there’s very, very little population growth at all.

    The highs and lows of real estate demand will be determined by immigration, and how it grows or declines over the years. The policies that influence immigration will then have an indirect influence on real estate demand. It also follows that areas that typically have a high percentage of immigrants will see increases in demand, as immigration into the country increases.
  5. The final of these demographic changes connects everything together. Residential real estate will be impacted in multiple ways by racial and ethnic diversity moving forward. Currently the US population is made up of 60% non-Hispanic white residents. According to Fry, however, white Americans are not having children at the same rate as other races. This will have an impact on future household sizes.

    Only 16% of the white population in the U.S lives in a multigenerational household, compared to 29% of the Asian American population, 27% of the Latino population and 26% of the black population.

    When building residential housing in the future, it is necessary to consider the population and its racial/ethnic background, how that will impact household size, and where people with those household sizes tend to live (city vs. suburbs).

Look at changes in the demographics

Going Forward

The real estate industry needs accurate information to understand who is willing to spend money on what housing units. Knowing where people choose to live, and what they need out of their living quarters will provide the necessary insights for developing the right housing units, and selling them successfully.

2 responses to “Demographic Changes That Will Impact Real Estate

  1. Really good stuff Jeff!

    Thanks,

    Brad S. Bridges
    President & Owner

    R J Bridges Corporation
    P: 412-276-9300 C: 412-913-0395 F: 412-276-1790
    424 Shady Avenue, Bridgeville, PA 15017
    http://www.rjbridges.com

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    • Thanks. I’m not in complete agreement with the observation about the move into the cities. While that has been the trend for a decade, there is beginning to be evidence of Millennials moving to the suburbs. This is a trend I expected to happen when that generation began having children. Suburban schools tend to be more highly-rated. In short, our kids are becoming us. However, the birth rate for the Millennial generation lags that of previous generations. That may be what is preventing a flight to the suburbs. It’s clear that urban centers are still popular choices for living but I think the “new urbanism” is waning.

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