How Demographics Affect Real Estate

Editor’s Note: Hal Cranmer has had a wild past. Born in India, he’s lived all over the world and started his working life as an Air Force Special Operations and Commercial airline pilot. After 9/11 brought him down from the clouds, he entered the corporate world and rose to the level of running a $36M machining plant. Yet from 2006 on, he caught the passion for real estate investing. He flipped a bunch of houses in Minneapolis and still owns several multifamily rentals there. Lately, he is into assisted living, and owns 5 assisted living homes in the Phoenix area. He loves to follow real estate trends, both locally and nationally.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Cranmer provides us with his own unique, lively and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out our other super-helpful Market News Updates. For now, enjoy...

Successful real estate investors are the ones who see trends coming and capitalize on them. They ask questions like:

What macroeconomic trends are gaining momentum?
What can I expect?
How will those trends affect real estate?
Do I need to change my business’ strategy to keep up with the market?

One of the many important factors you need to watch out for is demographics.

Different generations have different outlooks on real estate. The World War II generation generally bought houses and lived in them for the rest of their lives. Boomers are similar. Millennials… not so much.

If you aren’t already, it may make sense to keep up with the generational trends.

3 Trends in Demographics that Will Affect Your Investment

Take a look at the graph of birth rates in the US:

Businesses that marketed to the Baby Boomer generation may have seen a big drop off in business when the Boomers aged out of the age-range for that business’ products. That’s because Generation X (1965-1984) had a dramatic drop in births.

Since Generation X though, there has been a gradual ramp up in overall births. Although the trend is slow, it’s definitely up. Up for Generation X, Millennials and whatever the latest generations are called. Those people born after 1990 are now prime rental candidates. And first-home candidates.

That means just through demographics, the demand for the products real estate investors provide may be going up. When demand goes up, prices go up. And profits go up.

Here are a few other trends to think about...

1. Rental Demand is Going Up – Especially in Large Urban Areas

The website AtomData.com tracks a large amount of demographic trends. They have seen a dramatic drop off in homeownership due to several factors:

The older generations are staying in their homes until they move into a nursing home or pass away, making it harder to turn them over
The standard tax deduction was raised to a level that makes mortgage deductions less attractive than before. Homes are no longer a great tax shelter.
People of homeownership age are still smarting from the 2008 downturn. They are proceeding very cautiously into buying another home.

You can see that the graph on AtomData’s website shows a very low growth in the latest generation’s homeownership in the coming years. That means the younger generation will be looking to rent more than buy:

2. The South Beckons

The tax bill passed in 2017 no longer allows people to deduct state and local taxes from their federal returns. That means people who are already in high-tax states received additional tax increases.

Guess where the higher-tax states are located? Yup. Up North. Combine that with sunnier, warmer weather, lower cost-of-living and an increasing number of jobs. Those are powerful incentives for the younger (rental) generations to move South.

According to US News and World Report, 6 of the top 10 growing counties in the U.S. are in in Texas. People are moving South, but at a slower rate than they did before the great recession of 2008. California is showing growth, but it’s mostly driven by immigrants moving into the state.

Younger workers are moving to where the jobs are plentiful and the cost of living is low. Older people are finding it easier and easier to move South and enjoy the warm weather in their retirement years. When those older people move south, renting may sound better and better. If you’re thinking of looking into a new market for your investing, you may want to look South.

3. The Younger Generation Loves Technology – and the Older Ones Are Adopting It

Everyone knows that Millennials and younger have never known a low-tech society. They want access to tech in their homes—whether that is a home they own or one they rent.

People who flip homes, especially starter homes, would be wise to put a bunch of tech in it. Little things like remote thermostats, doorbells with cameras in them and remote-controlled appliances will help attract younger buyers.

Landlords can help attract renters more when they have the same features to offer.

Increasingly though, the older generation is starting to adopt tech as well. Not just reading Kindle books on their iPad or Facetiming with the grandchildren.

Older people are starting to discover the extra income from renting out a room of their home. Services such as Craigslist or Airbnb make it easier and easier to do so. As retirement funds become low, these old people may start becoming more of your competition.

Driverless cars may also become more mainstream. That means old people who have lost their driver’s licenses may be able to stay in their homes more. That means again less turnover in homes, more renters and higher demand for housing in general.

What Can You Do?

Here are a few things you can do to take advantage of demographic shifts:

Pay close attention and stay updated with all the changes renter and homeowner demographics every year
Many of the trends we discussed are national – stay well-informed in your local market especially
Take note of different factors such as new companies in your area, new constructions, statistics and population growth