The oncoming tsunami of retiring Baby Boomers is poised to cause ripple effects on the housing market on multiple fronts for decades.
Here is a snapshot of the most sobering facts about retiring Baby Boomers.
- 40% of all Baby Boomers (approximately 30 million) are set to retire in the next five years.
- 24% have no savings.
- Less than 30% are on track for retirement.
- Roughly 50% will live off social security exclusively.
The takeaway from these figures is that Baby Boomers will be retiring in droves in the next few years, and most of them will be financially unprepared.
What does that mean for the housing market? That means that the onslaught of retiring Baby Boomers will put tremendous stress on the affordable and multifamily housing market already characterized by undersupply and overdemand.
The demand for affordable housing will skyrocket with the impending retirement of Baby Boomers.
If you dig a little deeper, retiring Baby Boomers will have an indirect effect on the affordable housing market in a very unexpected way that very few investors or experts see coming.
An unforeseen consequence of retiring Baby Boomers will be the effect it will have on the labor pool for skilled tradesmen that are already aging and in short supply, as many Millennials are avoiding this type of work and the number of immigrants to fill those jobs shrink.
According to a study conducted by EMSI, 53% of all skilled trade workers were over the age of 45 in 2012. Nearly 20% of all trade workers were between the ages of 55-64.
What does this all mean for the housing market? It means that as skilled tradesmen retire in masses and with Millennials avoiding these jobs and with fewer immigrants poised to fill these jobs, skilled tradesmen will be in short supply – driving up labor costs. That means labor costs for electricians, plumbers, HVAC specialists, etc. are poised to increase by no small amount.
With increased labor costs poised to grow in the coming years dramatically, new affordable housing construction will suffer as developers and investors avoid the low margin affordable housing market for higher margins in higher price ranges.
With affordable housing poised be squeezed from both the supply and demand side from retiring Baby Boomers, the opportunity is now to take advantage of the foreseeable shortfall.
With home prices increasing at more than double the rate of growth of median income since 2012, homeownership has become less and less affordable. As a result, renter households have outpaced homeowners every year since the Financial Crisis.
This trend will only accelerate with 30 million Baby Boomers poised to retire in the next five years, with around 70% of those Baby Boomers financially unprepared. Add to that the fact that many of these Baby Boomers work as skilled tradesmen, and we have a perfect storm that will impact the affordable and multifamily housing market for decades.
The opportunity for real estate investors is tremendous for those who recognize this polar shifting trend.
For those willing to devote capital to acquiring affordable to mid-level multifamily housing or to develop this type of housing while labor costs are relatively reasonable will benefit from the huge shortfall in affordable housing in the coming years when demand will skyrocket while supply remains stagnant.
The ability to earn above-market rents will be all but assured, ensuring consistent cash flow for years.
For investors who don’t have the time or capital to acquire or develop multifamily properties themselves, private real estate investment funds are the perfect vehicle for the individual investor seeking to reap the financial benefits of being a landlord.
Leveraging the expertise of fund managers who have already learned the ropes. They have gone through the motions of learning to invest in real estate, such as multifamily successfully, so you don’t have to.
By taking advantage of the leverage opportunities passive investing through a private real estate investment fund affords, individual investors can take advantage of the trends discussed in this article that are poised to shake up the real estate market for decades.
Take control of your portfolio and invest with intention.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.