April 9, 2023
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Seniors Aging in Place Limit Supply of For-Sale Housing, Leaving Fewer Options
A growing number of seniors are staying in their homes longer and limiting the supply of houses for sale, and real estate executives and analysts say that's combining with higher mortgage rates and a tight supply to push aspiring homebuyers toward single-family rentals.
Households made up of those at least 65 years old increased 51.2% between 2007 and 2021, far eclipsing the 4.4% gain among non-senior households, according to a study by economic advisory and data science firm Chandan Economics for multifamily lender Arbor Realty Trust. That has been a major force in limiting supply and increasing pent-up demand that the report concludes is "poised to continue growing."
A big driver in that group are baby boomers, those 59 to 77 years old, who have been driving societal and cultural trends for decades. More of these seniors staying put means fewer opportunities for younger generations to buy, and those who aren't in a position to purchase a house often end up planning to rent longer.
That's resulting in young families increasingly choosing to rent single-family homes, some by choice but many because they can’t afford to buy, analysts said.
Jonathan O’Kane, vice president at Chandan Economics, said the build-to-rent market is also affected to some degree by seniors choosing to stay in their homes.
That effect on limiting supply is amplified by another trend: “Builders no longer are constructing the types of sub-1,400-square-foot homes that used to make up the starter home inventory,” with “fewer affordable entry points to homeownership for younger households,” O’Kane said in an email.
Higher Mortgage Payments
At the same time, mortgage rates have soared, reaching about 6.54% for a 30-year fixed mortgage, more than double the rate at the end of 2021, according to Mortgage News Daily.
A report from commercial real estate firm CBRE said the average monthly mortgage payment is 37% higher than the average monthly apartment rent. And that’s good for multifamily rentals, according to Matt Vance, CBRE’s Americas head of multifamily research.
Vance said in a statement that for-sale listings are down and the combined effect of higher mortgage rates and home price appreciation has driven the gap between mortgage payments exceeding monthly rent payments.
“While these markets will rebalance over the coming years, we expect the demand from would-be homeowners to support rental growth and a healthy performance in the multifamily sector,” he said.
Millennials, those aged 27 to 42, are most affected by the higher price of for-sale housing. A separate study last December that Chandan Economics did for Arbor said single-family renters tend to be younger and have more children than the typical homeowner, and they are more affluent than average renters.
Economist Ali Wolf told Fortune that “we’re creating, inadvertently, a renter society not because of choice but because of force.”
Benefiting From Downsizing
Single-family rental companies are finding that they can also benefit from those baby boomers who choose to sell their houses and become tenants.
Those downsizing seniors often opt to be renters by choice and shifted to amenity-rich single-family rentals or active adult developments.
“While most 65-plus will continue to remain homeowners, we have seen greater adoption and reduced stigma around renting,” Eddy O’Brien, co-founder and managing partner in Charleston, South Carolina-based Blaze Capital Partners, said in an email. Blaze Capital is an apartment investor that has started build-for-rent developments and has been buying 55-plus age restricted properties.
O'Brien added that “our strong opinion is that much of the rental aversion historically has been driven by the lack of the right product — maintenance-free, community focused, lifestyle driven at attainable price points.”
Dallas-based Invitation Homes, one of the largest U.S. single-family rental companies, said it is benefiting from both baby boomers who stay and those who leave homeownership to rent.
While the company’s tenants average age is about 39, in the millennial group, “we know anecdotally that baby boomers are definitely a group of people looking for flexibility,” Kristi DesJarlais, the company's chief spokeswoman said in an email.
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