Emptying the Nests?

What are the best options for the millions of single-family homes that may be left behind by Baby Boomers as they age, many of which are in suburban or exurban communities? Is it realistic to retrofit homes and neighborhoods to accommodate changing demand?

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America’s housing stock is in a new era unlike any we’ve experienced, and that will call for rethinking some basic premises about housing consumption, tenure, and household patterns.

For six decades, 1947-2007, everything about America’s housing market was predicated on expansion. American homes have become progressively larger, more complicated, and more technological. Housing consumption rose not only because of birth and immigration but also because households became smaller (as housing was cheap and was seen as cheap). Home prices outpaced inflation because people believed owning a home was a slow moving sidewalk to future retirement wealth.

All that changed in 2008. While we may have reached a soft bottom on housing prices, we are in a new reality where home appreciation is no longer taken for granted, where young people no longer flock to buy starter homes, and where unknown millions of Americans are tethered to homes they’d just as soon liquefy, so they could live somewhere else or some way else.

But the homes are assets, valuable and immovable, and suburbs are fine places to live – especially if you want yards for children to run around in, schools they can walk or bike to, and tranquil non-urban settings. Economic nature abhors an asset vacuum, so there will emerge new uses for the larger suburban homes, many of these uses involving multi-household housing. Homes could be retrofitted into dual-entry dwellings, where the homeowner becomes an in-law apartment resident and a family lives in the larger space. Homeowners could add formal or informal live-in domestic help, renting rooms to young singles in health-care or similar fields in exchange for light chores and the kind of looking-out-for we aging boomers need. Homes could even be sold or gifted, with some synthesis of charitable remainder trusts or reverse mortgages, enabling two households to cohabit – an older one shedding responsibilities and transferring equity value, and a rising one undertaking upkeep, maintenance, and home services. These new multi-household arrangements will have varying levels of formality and visibility, and will require rethinking of suburban residential zoning and building codes, and they’ll take years to play out. The rethinking will happen, because the suburbs are place-based community assets that will reinvent themselves.

The place to watch is Japan, which compared to the U.S. is aging and shrinking at warp speed. In the next 25 years, Japan’s population will shrink by 21,000,000 people (from 127m to 106m in 2040) – so whatever they do should serve as lab experiments for what we can do here at home.

David A. Smith is the founder and chairman of Recap Real Estate Advisors.

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