The housing industry is facing a big challenge. Why?

A couple of weeks ago I published a pretty lengthy article about how demographics will intersect with cultural changes to cause a substantial slowdown in the growth rate of American homeownership. It was a long article, and for paying subscribers only.

Today I am publishing this summary of the article, with short audio clips of me walking you through my analysis—and it’s free for everyone.

The full article (here) remains for paying subscribers only. I hope this summary entices you to join our small but growing community of housing experts.

An 80-year boom

Between the end of the war and 1950, the number of American homeowners leapt by almost 9 million. That was more than the combined increase in the four decades prior to the war.

Listen now · 1:07

What determines homeownership?

At any given time, the number of homeowners across the country is equal to the population multiplied by the headship rate, multiplied by the ownership rate. We can estimate the growth in homeownership by forecasting these three variables into the future.

Listen now · 0:42

The chart below shows that the forecasted acceleration in migration is no match for declining fertility. The population growth rate will plummet.

Headship and ownership rates: falling for each age group, but rising overall

Like most countries, the American population is aging. Over the next 30 years, the median age will rise from today’s level, 39 years old, to 43. The number of people over the age of 65 will rise from 60 million to 100 million.

Listen now · 0:53

At first glance, one might imagine that an aging population requires less housing: older people often move into retirement homes, hospice care, or back in with family. But in fact, more older people means more demand for housing. I explained this more comprehensively in the full article, here.

This analysis—which continues below—is the culmination of more than 80 hours of research, data analysis, and graphics work. My goal here, and with all the analysis I publish through Home Economics, is to generate unique data-driven insights about the future of housing and to share my findings using plain English and astonishing visuals. It’s a solo endeavor, entirely supported by paying subscriptions. If you’d like to receive exclusive content sent only to paying subscribers and support my work, please consider a full subscription:

Reconciling aging with declining age-specific headship and ownership

The chart below illustrates two trends. First, it shows the homeownership rate for the various age categories. It’s falling. Second, it shows a crosscurrent: aging of the population into cohorts that have historically owned a lot of housing (the size of each bubble indicates the rate of population growth of each age group). 

Listen now · 1:49

Putting it all together

The population effect dominates: the rate of homeownership growth is set to rapidly slow. I explained this more comprehensively in the full article, here.

Stress testing the forecast

There are three ways this forecast could go wrong: headship, ownership, and/or population growth rates evolve differently than how I assumed they will. How likely is this? How could the results change?

Listen now · 0:45

The Census Bureau’s population forecast is the most important ingredient in my view on homeownership—and therefore also the variable most likely to lead us astray. Their track record is not reassuring: the chart below shows how dramatically the Census Bureau’s population forecasts have shifted over time.

Listen now · 1:51

Conclusion: it’s the end of an 80-year housing boom

Although the population is aging—and older people tend to consume more housing—headship and ownership rates at every age are falling. Today’s middle-aged people are tomorrow’s seniors, and it’s not clear they will become homeowners to the same degree as older people do today. Most importantly, the population growth rate is declining. 

It’s hard to overstate the magnitude of this change: after all, the story has been the same throughout the careers of everyone working today. But the story is changing, surely if slowly, and with this shift, a new set of questions arise. 

What does the end of explosive homeownership growth mean for the real estate industry? How quickly will we feel this shift? What challenges, and what opportunities, does it present? 

I look forward to digging into these questions in the months ahead.