Demographic Shift Reveals Possible Home Building Market Opportunity
An increase in single-person households could lead to increased demand for small homes.
The housing market in America is actually amazingly quick to respond to changes in demand. You only have to consider the uptick in multi-family housing construction in the years following the Great Recession to see a perfect example of this adaptability.
However, sometimes trends cause markets to move past their equilibrium point and then a correction must be made. A few key pieces of evidence suggest we may be approaching such a correction or market shift, though fortunately it will likely be gradual.
Point 1: High Rents on Multi-Family Properties
First of all, consider the fact that the boom in multi-family housing construction—especially in big cities—has focused heavily on high-end properties. This has driven up rents. In fact, according to senior economists for Zillow, renters across the country are spending a greater portion of their income on rent than they have for the past 30 years. With favorable mortgage rates, some of these individuals may very well be interested in becoming home owners, especially as they get older and seek more stability in their living situation. However, the homes will have to be small and affordable.
Point 2: Increase in One-Person Households
Next, consider that more people than ever before are living alone. According to a recent paper from the Census Bureau, 28 percent of all American households now consist of a single individual living alone. This makes single householders the second largest group, just barely behind married couples with no minor children in the home.
As of 2013, 72 percent of single householders were over age 45. Many of these older single householders are living in homes that are too large for their needs. In fact, 63 percent of all single person homeowners have 3 or more bedrooms. As more and more single baby boomers enter retirement, mightn’t they want to downsize to a smaller home, or exchange the convenience of renting for the stability of their own home?
The Harvard Joint Study for Housing Studies has foreseen this possibility and suggested that an opportunity may exist to create smaller, affordable single-family homes in areas with aging populations. For example, the Midwest, which is currently 30 to 40 percent single person households and has an older population due to outmigration of the younger generation, might be a good place to target.
What Will You Do?
Is your institution nimble enough to act on these kinds of opportunities? Adopting our Fund Control software could very well help. Our software comes packed with features to not only help you manage existing loan accounts more efficiently and accurately, but also help you analyze opportunities more easily. You can use our stress testing feature to run all kinds of risk and reward scenarios on your portfolio to get a better idea of how moving in a new direction in lending—such as funding a new development of small, single-person homes—could impact your business.
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