The effects of aging populations on markets

An influx of births after World War II, combined with increased life expectancy and falling fertility rates, created a huge age gap in the United States. Nearly 10,000 baby boomers turn 65 every day and by 2030, 20% of the US population will be 65 or older. Without a significant change in productivity, the implications for the US economy will be far-reaching:

  • The decline in labor market participation
  • lower economic growth
  • Reduced savings and investment.
  • Senior black couple carrying moving boxes to a new home

It is important to contextualize these changing demographic dynamics within the current wealth inequality in the United States across age groups. Neil Howe points out this significant inequality in The Graying of Wealth, “Never before have people over 75 had the highest median family net worth of any age group. The average household today has twice the net value of a household that is 50 years old. As recently as 1995, they were pretty much the same.”

In addition to the obvious macroeconomic effects of an aging population, there are less obvious impacts on real estate and intriguing opportunities for technology and entrepreneurship. Specifically, we can expect this aging population to drive two high-end trends:

  • Thoughtful elderly woman sitting on a bicycle in a city
  • In concrete terms, we can expect that this aging of the population

Greater urbanization and growth of secondary cities

The world is urbanizing rapidly, a trend that we have seen more aggressively in the United States than in many other parts of the world. Over the past 150 years, the United States has grown from 25% of the population living in urban areas to more than 80%. That being said, young Americans aren’t the only ones flocking to the cities. According to Paula Campbell Roberts of KKR, “older populations are likely to continue migrating into the city to address mobility, access, and community needs, particularly if longevity continues to improve.”

The implication for real estate investments is clear: demand for more modern retirement communities and cohabitation options for seniors, located in or near major cities, will continue to grow. Despite the wealth of older people relative to younger populations, this wealth is not evenly distributed, and the fintech industry will have an opportunity to provide products to help make the experience of dying in cities more inexpensive.

Also, urbanization across the country does not necessarily take place in major cities, but in “secondary cities.” For affordability and lifestyle reasons, midsize cities are growing rapidly at the expense of cities like New York. In fact, in 2018, New York saw its first year with a population in decline for more than a decade.

That being said, these areas do not have enough medium-density housing to support rapid growth. For example, the Harvard Joint Center for Housing Studies notes that “tiny houses under 1,800 square feet accounted for just 22% of completed single-family homes, compared to an average of 32% in 1999-2011.”

More investment in real estate

This new generation of retirees is not only more numerous than previous generations but it is also made up of people who, in general, will live much longer. This prolonged retirement will have an additional impact on the investment strategies of this affluent segment. There will be increased pressure to make investments that generate stable cash flow while providing a higher level of financial security, and real estate investments fit the bill.

There will be increased pressure to make investments that generate stable cash flow while providing a higher level of financial security, and real estate investments fit the bill.

In addition to the strategies undertaken by pension funds, we can expect more direct investment in real estate by wealthy seniors. This prediction is further reinforced by platforms that focus on democratizing real estate investing. Cadre, for example, allows accredited investors to make direct investments in commercial real estate and even positions its real estate investment products as drivers of “stable cash flow” and “capital preservation.”

Expect more platforms like Framework to emerge now that seniors are becoming more tech-savvy and independent compared to their predecessors.

Go forward

There are many other ways in which the changing demographics of the country will change our lives. Everything from health care to transportation will need to be redesigned to accommodate the 70 million Americans claiming senior status. As part of these changes, significant venture capital investment opportunities will continue to emerge in real estate technology and financial services that support real estate.