PensionReforms' summary and comments
The baby boomers have affected all parts of the economy in most developed countries as they were born and then educated, partnered, bought homes, produced children, spent and saved.  Now they are reaching retirement age, we must expect them to have an impact on the transition from work, on decumulation, healthcare and housing.

And that, it seems, will be the case for housing in the US.  The report looks at what might happen to the housing markets in different states of the US as their residents decide to trade down to smaller houses and then move to their 'final' homes.  Who will buy those houses?

"We propose a method for estimating average annual age-specific buying and selling rates, weighting these by population projections to identify states whose growing proportions of seniors may cause an excess of home selling sooner than others. We also analyze the likely supplier responses to diminished demand, and recommend strategies for local planners."

Because most (85%) of house sales involve existing houses, the baby boomers wanting to sell down may outnumber the numbers of potential buyers.  Other things held the same, that should turn the long boom in house prices over the last four decades into an equivalent downturn.  In the 1990s, age groups under age 60-64 across the whole US were net buyers (more houses were bought than sold).  At the later ages, and particularly at the oldest ages (80+) sellers outnumbered buyers by an increasing margin.  "On average, 8.8% of persons 80 and older sold homes each year. Those patterns vary across different US states and even within states.

"With proper foresight, planners could mitigate what otherwise could be significant consequences of these projections."

Changing patterns of ownership "...could signal the end of the post-war era for planning, and reverse several longstanding trends, leading decline to exceed gentrification, demand for low-density housing to diminish, and new emphasis on compact development.  Such developments call planners to undertake new activities, including actively marketing to retain elderly residents and cultivating new immigrant residents to replace them." 

This assumes, of course that patterns of yesterday are repeated tomorrow.  That is unlikely to happen as all the players (buyers, sellers, builders, planners) adapt to changing conditions.  As the report notes, "In sum, supply will be dominated by the actions of aging homeowners who have little ability to postpone decisions, and homebuilders who cut back as little as possible."  PensionReforms notes that the former are likely to be more important than the latter.  Although the baby boomers' home equity may, as the report suggests decline that does not necessarily mean "shrinking retirement savings" as the report suggests.  If the baby boomer doesn't need to move, the home's value is actually unimportant to the home owner.  If there is a need to move, as long as that is within the same market, the replacement home is also likely to be cheaper.  Either of those will be more important to the baby boomer's heirs, rather than to the baby boomer.

However, if the baby boomer has to move to a more expensive location or to more expensive accommodation, like sheltered housing, then the falling equity might be important.  If the retired baby boomer has borrowed though, that is a different story as net equity can be caught between falling asset values and fixed debt.  PensionReforms suggests that there may be more recent information on this now than at the date of the report (December 2007).

It seems to PensionReforms that the markets are probably better able to resolve imbalances in supply and demand than planners.  However, the housing world is likely to look a bit different once all the baby boomers have retired.  (File size 718 KB; 18 pp)  347