Generational disruption
By: J. David Chapman/August 9, 2018
Last week, I wrote about the millennial generation’s disenchantment with homeownership. There is a fairly strong indication that they will not be the willing and able buyers we had hoped for the homes of the aging baby boomer population. This has the potential to create a new generational disruption.
Two separate studies from Fannie Mae’s Economic and Strategic Research Group and the Stephen S. Fuller Institute at George Mason University both indicate troubled waters ahead for residential real estate because of a generational impasse. Members of the baby boomer generation, who were born between 1946 and 1964, presently own 32 million homes in the United States. We are about to witness the largest generational sell-off of residential property in history as approximately 12 million older owners end their current homeownership status by opting to downsize, with many expected to become renters.
Baby boomers have the majority of their net worth in their home and are counting on the sale of that home to provide needed financial resources into and beyond retirement. The fear is that if the next generation is not financially able, or lacks interest in ownership of these homes, the expected values will not be realized.
This is setting up for an interesting scenario in regard to residential values and affordability. Oklahoma is one of the most affordable housing markets in the United States. I have been quoted as saying that we don’t have a housing affordability problem – we have an income problem. As someone who monitors the profitability of apartment and rental home owners, I can tell you they are not making excessive profits in this market. The owners I monitor simply can’t reduce pricing and offer a clean, safe rental product. We have an extremely competitive rental home market.
This competitive situation exists because, at 48 percent, Oklahoma City has the largest percentage of single-family rentals of any large city in the United States. This generational disruption scenario could be the answer to frustrated Oklahoma City rental home landlords.
It is setting up a situation where multiple generations could be competing for similar rental products – moderately sized single-family rentals. The really encouraging thing about this situation is both generations will be rental-by-choice customers setting up for longer-term, stable tenants who are able to pay fair market rates for these homes.
J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).