Closing a New Generation Gap in real estate based on Baby Boomers

Closing a New Generation Gap in real estate based on Baby Boomers

Happy Senior CoupleEconomists who predict underperformance in real estate based on Baby Boomers downsizing are overlooking another huge demographic trend.

Each day about 8,000 baby boomers turn 65, and many of them wish to downsize. Given the smaller size of the Generation X or baby bust generation (those born between 1965 and 1984), it seems inevitable that a sizable stock of larger homes could be left sitting on the market. As a result, home prices could underperform compared to the historical norm, some economists say. While this projection sounds logical, it overlooks a source of housing demand that can easily compensate for the generational demand gap: immigration.

The stage is set for Washington lawmakers to debate this politically sensitive topic in the coming months, and we can only hope the back-and-forth is conducted in good faith from both sides of the aisle. Regardless of the specifics of any new legislation, the implication for the housing market largely comes down to simple math: Additional people mean additional housing demand. Legal immigrants, about 1 million new arrivals in each of the past 30 years, will be the ones who can step in to fill the generational housing demand gap.

The rate of home ownership among immigrants is largely a function of how long people have been in the United States. For those in the country less than five years, the rate is below 20 percent, but it climbs to almost 80 percent by their 40th year. That means past immigration will help boost current home buying demand and more recent arrivals will assist future demand.

The drive to own real estate is very strong among immigrants. We have seen that immigrants are more likely to become home owners than citizens born in the United States with a similar heritage. In other words, an immigrant from China may become a home owner sooner than a native-born American of Chinese descent.

Of course, housing demand alone is no reason to push for, say, a doubling of immigration rates. But the impact of easing immigration policy over the long term may be good for the housing market, which is something lawmakers should keep in mind as the debates continue.