BABY BOOMERS AND LONG-TERM HOUSING MARKET TRENDS • Possible adverse impacts on home values in some newer neighbourhoods, more distant from the downtown core and/or suburban employment centres, based on more existing units coming onto the market at the same time; • Increased demand for smaller units and/or condominium units in “walkable” neighbourhoods that involve less commuting; • Higher housing prices in established neighbourhoods that may effectively reduce opportunities for most “Millennials” or “Gen Y” home buyers; • Different kinds of housing demand based on values and experiences of “boomers” compared with both older and younger generations; • Increased intensity of local debate over urban growth in cities because retired boomers have time, money, and skills to engage. Anticipated Impact of Baby Boomers on Housing Demand A study from the Conference Board of Canada predicted that by 2030 about 80% of new housing demand would be consumers in their retirement years. It would bring a new wave of homes that are low maintenance, such as condominiums or seniors residences. At the same time the shift would put downward pressure on prices of traditional single-detached homes. At the time, a spokesman for the Canadian Home Builders’ Association said its members were catering to the aging population by building more condos and retirement communities to meet the growing need. For more: business.financialpost/2011/09/08/aging-boomers-spur-housing-needs-by-2030/. "Baby boomers are the largest demographic cohort in our population and as such have been the main drivers of household formation for the past 40 years,” says the Conference Board report. Those same boomers, when they were in their 20s in the 1970s, helped drive the market to new heights with new housing starts reaching a record 274,000 in 1976. Then it was the boomer’s children, the “echo-boomers”, who helped drive the market last decade as they began forming households. Now, it’s going full circle with boomers downsizing. In 2006, 57% of condo owners were over the age of 50 while 17% were over the age of 75. The trend is only expected to pick up steam as boomers abandon their single family homes. “The point is not just retirement homes. The trend as we look ahead is more and more to multiple family dwellings,” says Pedro Antunes, director and analysis at the Conference Board, and one of the report’s authors. “The changes will happen but they will be slow over time.” Mr. Antunes says the stock of single family homes probably won’t decline as others fill the gap and live in them, but there will not be as many new ones built and renovation activity will also slow. That could impact long-term prices for single family homes although other economic factors could intervene. “It’s going to be a smaller cohort [that wants single family houses] but with a housing stock that large you would probably expect an easing in price for those types of homes,” said Mr. Antunes. Don’t blame boomers if housing goes bust Several commentators believe that equity and house prices may be adversely affected by baby boomers as they reduce purchases and sell holdings during their retirement years. But this forecast is based on just one of the many factors that impact equity and house prices, so its predictive power could disappoint. Indeed, the track record of previous demographic-based predictions suggests such an outcome is likely, i.e., that things will not turn out that way. A great deal of scholarly research has established the significance of the other factors. Housing demand is also influenced by immigration, income growth, inflation, regulatory changes, government policies and other variables, as highlighted in papers such as “Demographic Changes and Real Housing Prices in Canada” by Mario Fortin and Andre Leclerc. The impact of baby boomers can be further offset by supply changes: whenever housing demand softens, for example, new home builders may respond by reducing levels of the house construction. The perils of relying on demographics to predict house prices were illustrated early on. In 1989, the much-discussed paper, “The Baby Boom, The Baby Bust and The Housing Market” by N.G. Mankiw and D.N. Weil, analyzed demographic factors. They predicted U.S. real house prices would fall by 3 per cent annually between 1987 and 2007. Instead, they rose by about 4 per cent a year. In demographics expert David K. Foot’s 1996 book, Boom, Bust and Echo – How to Profit From the Coming Demographic Shift, the real-estate decline of the early 1990s was projected to continue over the long term. He posited this because he believed most boomers had already acquired their houses. The “baby bust” generation following them did not have the numbers to pick up the slack. Instead, housing activity picked up again in the 2000s, as immigration, migration within Canada, an a resurgent economy drove new residential growth. Demographic analyses and forecasts may have their uses but they would seem to lie more in areas where the other causal factors are less numerous. If housing markets do go into decline, it would require the contribution of non-demographic variables. But these factors are added to the analysis, more positive scenarios may also emerge. For more: theglobeandmail/globe-investor/investor-community/trading-shots/dont-blame-boomers-if-housing-goes-bust/article7784580/#dashboard/follows/. For the article by Messrs. Fortin and Leclerc: https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?cat=35&itm=172&lang=en&fr=1374775454340. (A CMHC publication) Long-Run Rate of Return for Canadian Home Prices - TD Economics Comment "With the slowdown in the Canadian housing market well entrenched, many are worried about the future value of their homes. This is not surprising as real estate is the largest financial asset most Canadians have in their possession. The housing market is prone to cyclical ups and downs and we should embark on a gradual, modest, downward adjustment over the next three years. We project a 3.5% annual rate of return on real estate to prevail beyond 2015 – this is the long-run rate of increase for home prices in Canada. However, this pace will be moderately lower than they have been historically (5.4%). A string of lacklustre performances over the next few years will mean that the annual rate of return for real estate in nominal terms will be roughly 2% over the next decade. In other words, home price gains should simply match the pace of inflation. The long-run rate of return for home prices is primarily driven by macroeconomic fundamentals, such as income and economic growth, and demographics (e.g., population and household formation). Structural changes, including an ageing populace and the number of immigrants as a share of total homebuyers, could influence real estate returns. However, the literature is mixed on whether these changes represent an upside or downside risk to our 3.5% status-quo projection." For more: td/document/PDF/economics/special/LongRunRateOfReturnForCanadianHomePrices.pdf. Waterloo Region Director of Community Planning Questions Aging in Place Hypothesis, at Least for Newer Suburbs Research primarily undertaken in 1980s and early 1990s showed that when people retire they tend to remain in their existing home until they die or are unable to care for themselves. Kevin Eby, Director of Community Planning has questioned some key aspects of this hypothesis in a presentation to the CHBA Urban Council: He argued that the time period in which single-detached housing was built will affect the rate at which seniors age in place within it. Other factors will likely also come into play: seniors are generally healthier longer today; housing is often now considered an investment rather than a goal; there has been and increase in housing choices for seniors; there has been an increase in retirement options. All could result in lower rates of aging in place in the future. If this were to become the case, Mr. Eby says: single-detached units could be recycled earlier to accommodate young families; alternative forms of housing (multiples) could be required to house these seniors; and housing forecasts and service delivery strategies for seniors may need to be reconsidered. He added that the Waterloo Region survey of those ready to move into higher-density "reurbanization area" housing were that 70 % of the general population would consider moving to a reurbanization area; a further70% of those also indicated an interest or willingness to move to a unit other than single detached. For more: chba.ca/uploads/Urban_Council/May2011/Tab%205%20-%20Demographics%20and%20Housing%20Choice%20-%20Kevin%20Eby.pdf. Does More Retirees Mean More Intense Local Debates About Growth? This seems to be an obvious question for the anticipating long-term futures of both Canadian suburbs and the residential construction industry. As yet, limited research or analysis appears to have been done on the topic. A potential exception is the writings and community-based advocacy work of communications consultant Bob Ransford of Vancouver. He does not specifically address the role of baby boomers in debates about proposed changes to existing neighbourhoods. Yet they are there by implication as long-established property owners. Here are two examples, on laneway homes and on neighbourhood plans in his home city: lanefab/vancouver-sun-br/; udi.bc.ca/news-central/news/point-grey-signals-resolution-be-left-alone.
Posted on: Tue, 30 Jul 2013 17:03:37 +0000
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