Changing demographics are the main cause of today's housing surplus, according to new research by a University of Virginia urban and environmental planning professor
Changing demographics are the main cause of today's housing surplus, according to new research by a University of Virginia urban and environmental planning professor. The path to a housing market rebound doesn't lie in new construction, William Lucy found, but in rethinking housing needs based on changing demographics.
Lucy based his report on a review of Census Bureau data, Department of Housing and Urban Development reports, Joint Center for Housing Studies, and research by the Urban Land Institute and other scholars.
"Surplus housing is not caused by either excessive new construction or by foreclosure," Lucy said. Only 20% of housing units for sale or sold in 2009 and 2010 were new houses and foreclosures. The excess supply and its persistence are directly linked to the increase in homeowners over age 55 who want to sell and downsize, coupled with the decrease in number of 30 to 45 year olds who want to buy.
From 2000 to 2009, the number of homeowners 55 and older who may want to sell increased by 8 million, while the number of potential 30- to 45-year-old homebuyers decreased by 3.6 million. The ratio of aging baby boomers to young adults was 5 to 1 in 2010, a dramatic increase from 3.5 to 1 in 2000 and 3 to 1 in 1990.
"These ratios are important," Lucy says, "because 80% of households 55 and over are homeowners, and therefore include many who want to sell, while under age 30, less than 40% are homeowners, so they include many potential homebuyers. There are simply too many sellers and too few buyers."
The demographic shift, combined with the desire by both groups of homeowners for convenient locations, smaller units and less driving hassle, is contributing to the excessive number of existing houses, which are located primarily in suburbs, according to Lucy. "Location is more important than ever, and how location is interpreted has changed," Lucy said.
With foreclosures and repossessions contributing to housing surplus predominantly in the outer suburbs and suburbs, these locations are not considered as being safe investments or as having good resale potential for 30 to 45 year olds, who later need to sell for career advancement. With the imbalance of sellers and buyers, there is "increased uncertainty about the wisdom of buying if homes are difficult to sell, and too many are in locations where demand has declined, especially the outer suburbs with high foreclosure rates," Lucy said.
Surplus existing housing has reduced the demand for new homes, which has slowed current construction and increased construction unemployment. Given these conditions and trends, new construction in the outer suburbs, which has been the trend since 1946, is no longer viable.
More decentralized, multidimensional and shared solutions by developers, builders and government are required; and opportunities for fix-up, remodeling, expansion and condominium projects in cities and inner suburbs, fueled by preferences for convenient locations, will be the economic driver in the housing market in the future, Lucy observes.
"Revival of housing may be slower than many wish, and it will not be a full early partner in moving employment toward its previous peak," he says. "It is time to move on to a richer, more varied and enhanced quality of life with the convenience and energy efficiency that denser settlements can provide."