Originally Published by REI Club
With the older demographic accounting for a remarkable 16.8% of the U.S. population, or 55.8 million people in 2020, significant shifts await the real estate and financial sectors.
The landscape of demographics is undergoing a profound transformation as the baby boomer generation approaches retirement age, a phenomenon often referred to as the “Silver Tsunami.” According to the 2020 census, one in six individuals in the United States was 65 or older.
From 2010 to 2020, the aging population experienced its most rapid growth in over a century, expanding nearly five times faster than the total population, as reported by data from ElderGuide.com. With the older demographic accounting for a remarkable 16.8% of the U.S. population, or 55.8 million people in 2020, significant shifts await the real estate and financial sectors.
Demographic shifts from the Silver Tsunami affect the housing market in a big way
The pace at which the aging population has expanded between 2010 and 2020 is unprecedented in history. Projections indicate that by 2050, this demographic will reach 82 million people—a 47% increase—while its share of the total population will rise to 23%. Consequently, the U.S. population is older now than it has ever been.
What implications does this hold for the housing market? Undoubtedly, there will be heightened demand for senior living facilities and downsized homes, coupled with decreased demand for larger, family-sized residences. As more seniors opt for smaller, easier-to-maintain homes or transition to assisted living or nursing facilities, the family homes they once occupied may flood the housing market. But before this move, seniors and their families are also burdened with choosing the right nursing home for their needs, which is an unfamiliar for most. This can often create elevated stress in real estate transactions because sellers may feel rushed, and in many cases, don’t want to move in the first place.
Jason Anderson, real estate broker and founder of VeteranPCS, says, “We’re seeing several new economic factors shifting the real estate market. Affordable housing has been a common denominator. We’ve already seen an increase in the development of low-maintenance senior-living communities with lower square footage and pricing. Millennials are entering the homebuyer market or beginning to upgrade to larger homes to accommodate their family needs. We could see this shift benefit housing affordability as supply increases for large homes for millennials, but could, alternatively, keep prices high for smaller homes since more of the senior population has significant equity and purchasing power resulting from the boom in home prices.”
What’s the economic impact of an aging population?
The surge in seniors amplifies demand for healthcare services and elder care, leading to escalated healthcare costs that strain both public and private healthcare systems. Innovative solutions are imperative to manage spending without compromising the quality of care. As the balance between working-age contributors and retirees tilts, pension systems face pressure. This disparity may necessitate adjustments to retirement age and benefits, influencing individual retirement savings habits and financial planning.
The labor market is not immune to these effects, as an aging population can precipitate a shrinking workforce, potentially impeding economic growth and productivity. However, this challenge presents an opportunity for technological innovation and advancement. Automation, AI, and remote working technologies can offset the impact of a reduced labor force, enhancing productivity and creating new avenues for elder employment and contribution.
What investment opportunities and risks does this create?
The Silver Tsunami heralds unique investment opportunities. With a burgeoning need for senior housing and assisted living facilities, investors can anticipate stable returns owing to the consistent demand for these services. Alongside residential spaces, the aging population will necessitate medical care, driving demand for medical office spaces and other healthcare-related properties.
However, these opportunities are not devoid of risks. The surge in demand may lead to market saturation through over-construction. Moreover, the heavily regulated nature of the senior living and healthcare sectors means that any legal changes could impact profitability. Economic fluctuations pose another risk, as families may struggle to afford assisted living or elective medical procedures during downturns. To mitigate these risks, investors should diversify their portfolios across different sectors and geographical locations. Remaining abreast of regulatory changes and market trends is crucial for making informed investment decisions.
