Housing Demand Expected to Surge Over Next 10 Years According to MBA Report
Projections from Mortgage Bankers Provide Good News for Multifamily if Current Post-Recession Trends Hold
By Mark Heschmeyer
In what it projects would be one of the strongest housing markets in U.S. history, the Mortgage Bankers Association (MBA) expects between 13.9 million and 15.9 million of additional households will be formed by 2024.
The MBA report, titled "Housing Demand: Demographics and the Numbers Behind the Coming Multi-Million Increase in Households," finds that surge in household formation, and expected related housing demand, will be driven largely by hispanics, baby boomers and millennials.
"Household formation has been depressed in recent years by a long, jobless recovery and by a lull in the growth of the working age population," said Lynn Fisher, MBA's vice president of research and economics. "(However,) improving employment markets will build on major demographic trends – including maturing of Baby Boomers, Hispanics and Millennials – to create strong growth in both owner and rental housing markets over the next decade."
The MBA report also noted how certain demographic segments have been postponing marriage and starting families in the new economy.
"When it comes to starting new households, age 35 is the new 25, as younger Americans are spending a longer time in school and delaying major life events like getting married and having children," noted Jamie Woodwell, MBA's vice president of commercial real estate research. "As Millennials age and create more housing demand, these long-term social trends will mix with demographic changes and the waning hang-over from the Great Recession with a net outcome of increased demand for housing."
As projected by the MBA, household growth will include, by race:
5.5 million to 5.7 million more Hispanic households in 2024 than in 2014;
3.4 million to 5 million more non-Hispanic white households;
1.8 million to 1.9 million more Asian households;
2.4 million more black households; and
730,000 to 890,000 more households other than the four major categories listed above.
MBA also sees the aging Baby Boomers accounting for household growth, with 12.3 million to 12.9 million more households age 60 and over in 2024 than there are today.
Millennials will also be a key component of growth raising the ranks of households age 18 to 44 by 4.1 million to 5.1 million.
In the early 1970s, when a large share of the Baby Boomers were in their mid-20s, considered to be the prime renting years, the U.S. saw the largest multifamily construction boom in its history. Then, in the late 1970s, when rising numbers of Baby Boomers hit their 30s and they began buying houses in larger numbers, the U.S. saw the largest single-family construction boom of any time until the mid-2000s.
Implications for Multifamily
Today, with the U.S. population expected to grow by 24 million over the next 10 years, demand for all types of housing is expected to increase according to the MBA.
While demographic changes are the most significant driver of coming changes, the MBA report found that other factors will also play significant roles.
In its report, MBA modeled how housing demand will change as a result of demographic changes that are already underway as well as such other factors as changes in household formation resulting from long-term societal trends and the hangover from the Great Recession; and potential changes in the balance of households owning and renting.
As a result, the report found that demand for rental housing will be affected in many of the same ways.
Factoring in both demographic changes and changes to headship rates but holding age- and race / ethnicity-specific homeownership rates at 2014 levels, the MBA said will result in 5.6 million additional renter-occupied households in 2024.
Baby Boomers will be a major part of that growth with 3 million more renter households in 2024 headed by someone 60 or older than there are today.
However, given higher rentership rates among younger households, the impact from Millennials is also expected to be considerable, bringing a total of 2.7 million additional renter households headed by a person 18 to 44 years old.
The MBA expects the smaller-sized Generation X demographic will see a decline in the number of renter households headed by people 45 to 60 years old by 100,000.
If certain age- and race / ethnicity-specific homeownership rates revert to their long-term average over a 10-year period, some of the negative impacts of the housing bust and Great Recession may be offset, in which case the MBA said rental demand will be significantly reduced, by 2.5 million households.
Given the assumption of a reversion to higher homeownership rates, the impact from Millennials will be far less significant than in the previous scenario, bringing a total of just 700,000 additional renter households headed by someone age 18 to 44.
The smaller size of Generation X, coupled with higher homeownership, means the number of renter households age 45 to 60 will decline by 900,000.