They were the baby boomers at birth, and today as they “grow up” and eye retirement, some builders expect them to jumpstart an affordable housing boom.
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According to a report by the Harvard Joint Center for Housing, by 2035 more than one in five people in the U.S. will be aged 65 and older, and one in three households will be headed by someone in that age group. The Projections and Implications for Housing a Growing Population: Older Adults 2015-2035 report notes the growth will increase the demand for affordable, accessible housing that is well connected to services beyond what the current supply can meet.
Census data shows that income drops significantly after the age of 75, falling from an average of $54K to $36K. With data also showing that these citizens spend more than 1/3 of their income on housing, the average single family residence is not affordable.
"Right now, more than 19 million older adults live in unaffordable or inadequate housing, and that problem will only grow worse in the next two decades as our population ages," said Lisa Marsh Ryerson, president of AARP Foundation, which provided funding for the housing report.
The CEO of Real Property Management, Lukas Krause, discussed with FOXBusiness.com what this means for seniors and the real estate industry.
Boomer: What does the government need to do to rethink the types of housing needed for baby boomers?
Krause: Most housing regulations are controlled at the local level and range from zoning restrictions to building codes, which can become impediments to building new housing for seniors. San Francisco and Portland, for example, restrict and regulate new construction, which has led to a shortage of housing and run-away inflation in housing costs. City plans, zoning regulations and building codes should be reviewed to address the growing elderly population, in addition to transportation, healthcare, and financial assistance/incentives.
The number of older households with disabilities related to mobility, self-care, or household activity is also projected to increase by 2035. Many seniors want to ‘age in place’ and stay in their homes. To do so, partnerships between health care and housing are needed to support the trend of providing long-term care in the home.
Governments may need to consider offering financial assistance to low-income older adult renters, and incentive programs for safe and senior-friendly renovations, energy efficient home upgrades, and property tax relief. Affordability will be key, since more than half of all boomers have less than $100,000 saved for retirement. Public awareness and education is needed to encourage older adults to consider their future housing needs earlier in life.
Boomer: What does this mean for the real estate industry as a whole?
Krause: People currently over the age of 55 have saved only $150,000 for retirement, per Fidelity and Vanguard estimates. This savings amount will generate only $500 per month in income, if the recommended 4% withdrawal standard is followed. Social Security pays an average of $1,294 in benefits to retirees, so average monthly income will be $1,794 or $21,528 per year. If 34% – 38% is spent on housing, the average retiree will have a housing budget of $610 – $682 per month – half of today’s average apartment rental cost of $1,100 per month. This means cohabitation and new forms of housing will be needed in the future. It also means that retirees who have not already purchased a home, will be unlikely to afford one.
Boomer: Should boomers be looking at renting instead of buying houses in retirement?
Krause: Home prices are increasing more rapidly than the cost of rent, though both renters and homeowners pay relatively the same amount over a long span of time.
If a boomer has the financial resources, buying with a fixed mortgage rate would lock their monthly mortgage payment until the house is paid off. However, the costs of maintenance, insurance, lawn care, utilities, taxes, etc., are likely to increase at the rate of inflation, so buying is not a hedge against inflation. Buying opens the door to a reverse mortgage in the future, or down-sizing to free up cash.
Renting puts the cost and responsibility for maintenance, taxes, floor, hurricane or earthquake insurance onto the landlord. It gives the tenant greater flexibility to move for health or financial reasons. Renting in a community specifically designed for boomers can provide the amenities, services and technology needed by boomers, though the cost may be prohibitive.
Boomer: With the impending growth of boomer retirees, how, in your opinion, should builders be incorporating into plans?
Krause: Accessibility is crucial. Design elements should include: single-floor living without stairs, doorways and hallways at least 36” wide, non-slip flooring with smooth thresholds between rooms, handrails, adequate lighting, lever-style door/faucet handles, higher toilets with extra space around for easier assistance, showers equipped with a bench, and multi-height kitchen countertops. For the exterior of the home, zero-step entrances, level driveways, weather-protected walkway and entrance, and low-maintenance landscaping should be considered.