Today the Joint Center for Housing Studies of Harvard University released the 2015 State of the Nation’s Housing report, which highlighted four main trends. First, homeownership rates by age are declining faster than the overall rate. Second, the rental boom is not only driven by millennials, but also by older households. Third, rental burdens are high and spreading beyond low-income renters. Fourth, the aging of households and increasing share of minority households are two demographic trends with wide ranging implications.
While overall homeownership rates are at a 20-year low, they are even lower for all age groups below 65. This is because of the cohort effect—as the age of the overall population increases, it naturally leads to higher homeownership rates since older Americans typically have higher homeownership rates. A more appropriate way to look at homeownership rates is by age structure, which is not impacted by the aging of the population. With the exception of households 65 and older, every single age cohort has homeownership rates that are at least two percentage points lower than 20 years ago. The largest declines are for 35 to 54 year olds who have homeownership rates that are at least 4 percentage points lower than 20 years ago.
Rental household growth averaged 770,000 since 2004, the largest 10-year growth in rental demand since the 1980s. The growth in rental households is typically attributed to the millennial generation, currently at 86 million, and is larger than baby boomers were at similar ages. However, the surge in rental demand began before the bulk of millennials became prime rental age. It is not just due to millennials but also their parents. Since 2004, households aged 45 to 64 accounted for about twice the share of renter growth than those under 35.
The surge in rental demand has resulted in increased rental cost burdens. In 2013, almost half of all renters had housing cost burdens (defined as spending more than 30 percent of one’s income on housing) and more than a quarter experienced severe cost burdens (defined as spending more than 50 percent of one’s income on housing). In the last 10 years, the share of renters age 25 to 34 with cost burdens increased from 40 percent to 46 percent, while those with severe cost burdens jumped from 19 percent to 23 percent. Cost-burdened households are not limited to low-income earners, as this trend is spreading to moderate- income households. The cost-burdened share of renters earning between $30,000-$45,000 rose to 45 percent in 2013, up 7 percentage points from 2003.
The two most significant demographic trends are the rising share of minorities and the aging of the population. Minorities account for only 28 percent of baby boomers. However, minorities make up 40 percent of Generation X and 45 percent of millennials. Hispanics alone make up 22 percent of the millennial generation, more than twice the share for baby boomers. The report also highlighted several structural features of the housing market that remain obstacles for minorities. For example, in 2013, 29 percent of African-American and 25 percent of Hispanic homeowners were upside down on their mortgages, compared to 16 percent of white, Asian and other owners. CoreLogic data indicates that 3.7 percent of loans were seriously delinquent in 2014. However, the delinquency rate was at least 9 percent in a tenth of the recorded neighborhoods, and four of those 10 neighborhoods were primarily minorities. Minority homeowners are also more likely to have higher mortgage rates. More than 40 percent of Hispanic and African-American households that have a mortgage report paying interest rates above 5 percent, compared to less than a third of white and Asian households.
The aging baby boomers will increase the number of older households and double the number of households more than 80 years old by 2035. The unprecedented growth in the number of seniors will increase the need for affordable, accessible and supportive housing stock. Real incomes for households between 45 and 54 years old are at their lowest level since the late 1960s. Given that more adults are working into the traditional retirement age because of stagnating incomes, they are more likely to age while in their single-family homes, implying lower turnover and higher spending on remodeling of existing structures.