Family-Friendly Homes: Where is the Inventory?

For years, younger adults would buy their first “starter” home of less than 1800 square feet in their late 20s, then graduate sometime in their 30s to a larger, family-friendly “dream home.” At retirement age, they would sell their dream home, downsizing as they moved into a smaller, more manageable home that would free them up from the cares and worries of a large or aging property and enable them to spend their Third Chapter in other pursuits. At each stage of the cycle, younger generations would purchase the homes left behind by the previous generation.

Baby Boomers Are Not Cooperating

But today’s Baby Boomers are bucking the downsizing patterns of the last 20 years. A study by Merrill Lynch and Age Wave showed that some 49 percent of retirees who moved chose a comparable home, and 30 percent moved into a larger home. In fact, Baby Boomers who are upsizing are now the largest group of home buyers — 39 percent in 2021, up 10 percent according to the National Association of Realtors’ (NAR) 2023 Home Buyers and Sellers Generational Trends Report.

Many Baby Boomers are financially secure, having accumulated hefty real estate wealth from home equity and maintained well-funded 401k accounts, making them also able to adapt to today’s fluctuating market conditions. Additionally, these Baby Boomers often make cash offers, which generally win real estate bidding wars against younger buyers who are also burdened with child-rearing expenses.

Even older adults of modest means are constricting the supply of family-friendly homes for younger buyers. These Boomers who can’t find new homes with monthly price tags comfortably covered by their pension, social security, and/or investment income are choosing to stay put, remodeling as needed, and aging in place.

New Kid On The Block Is Stealing Our Lunch

Enter institutional buyers doing aggressive buy-and-hold activity across the country.  The chilling dynamic is described concisely by Hudson Cashdan:

Prior to 2010, the single-family rental market was largely ignored by big institutional investors, which preferred easy-to-scale multifamily properties. But since the financial crisis — and especially since 2019 — that’s changed. Financial heavyweights like J.P. Morgan Asset Management, Blackstone, and Goldman Sachs Asset Management have helped bankroll an industry of more than two dozen single-family home rental companies that are snapping up existing properties — and building new ones too.

Residential real estate acquired by companies or institutions soared to 90,215 homes in the third quarter of 2021, as investors, both large and small, accounted for 18 percent of single-family home sales. That’s up 80.2 percent from the year prior, according to the online real estate firm Redfin. Nearly three-quarters of residential purchases by investors were single-family homes, while multifamily homes — a market in which investors have been significant players for decades — accounted for just a quarter of sales.

The influx of this institutional capital is one element driving the surge in single-family housing prices and rents across the U.S. today, and despite negative media scrutiny, rising rents are attracting even more investors. While profit is clearly the investors’ goal, the evolving circumstances that now make single-family homes a desirable holding have implications for both the models used to make investment decisions and the way assets are allocated across their portfolios.

These dynamics raise many questions for housing advocates:

  • Should the push be for more affordable middle-income housing initiatives?
  • What would tame institutional investor appetite for single-family ownership?
  • Would the expansion of tiny houses and ADUs be a means of increasing the inventory of family homes as Baby Boomers release them more quickly?
  • Who are the hardest-hit victims in the current housing ecosystem?

All questions to explore in future posts. Please leave comments below with your thoughts and experiences on the issues raised in today’s blog.

Third Chapter Living celebrates, challenges, informs and promotes conversations about housing issues affecting the Baby Boomer Generation. Check out our website to learn more about our work on aging-in-place options. The author, Reese Fayde, is a dedicated problem solver and skills development coach. She’s passionate about working with change-makers — individuals committed to transforming the status quo, whether it’s in their industry, community, or organization.

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