AGING BOOMERS WON'T LEAD TO LOWER HOUSING PRICES, STUDY SHOWS

COLUMBUS, Ohio

-- Despite arguments to the contrary, the aging of baby boomers won't lead to less demand for housing and lower housing prices in the coming years, a new study suggests.

In forecasting lower housing prices, some analysts have pointed to a study that found people over age 70 in 1980 demanding much less housing than people in their 50s. As a result, as the large baby boomer population passes through age 70, the argument has been that the market for houses -- and housing prices -- will plummet.

But that's not likely to happen, said Patric Hendershott, co-author of the new study and professor of finance at Ohio State University's Max M. Fisher College of Business.

The reason has to do with education. People with lower education levels -- and consequently less income -- have lower demand for housing.

"Seventy-year-olds in 1980 had far less education and income than 50-year-olds, due to the surge in education after World War II," Hendershott said.

"But baby boomers, because of their higher education levels, and thus higher lifetime earnings, will have a lot more income when they retire than did previous generations. As a result, they aren't likely to cut back on housing demands. Aging alone should not trigger declines."

Hendershott conducted the study with Richard Green, a professor of business at the University of Wisconsin. Their study was published in a recent issue of the journal Regional Science and Urban Economics. In the study, the researchers used 1980 U.S. Census data to examine how age, education and income affected the willingness of people to buy houses and what kind of housing buyers wanted.

The results showed that older people in 1980 had significantly less education than younger people. About 15 percent of those aged 24 to 34 were college graduates, compared to less than 5.5 percent for those over age 64.

Educated people also had greater housing demands, the study found. People with higher levels of education were more likely to want newer houses, condominiums, and houses in urban areas. Highly educated people also wanted houses with more bedrooms and more bathrooms than those with less education and were more likely to demand central air conditioning.

"The argument that housing demands of today's 50-year-olds will decline as they age ignores the fact that their education will not decline," he said. "As a result, their income will not decline as sharply and they will have more to spend on housing, all else being equal."

That doesn't mean that housing prices will not decline for other reasons, Hendershott cautioned. Many other factors, such as interest rates, also have an impact on prices. But, he added, "demographic changes over the next three decades are likely to be so modest that they almost certainly will not have a significant impact on housing demand and prices."

Results of the study suggest that housing demand will rise about 10 to 15 percent a year until 2030, mainly due to rising population in the United States. That is far less than the 39 percent and 23 percent increases in housing demand during the 1970s and 1980s, respectively. Those were the decades when baby boomers first entered the housing market, swelling demand, Hendershott said.

Contact: Patric Hendershott, (614) 292-0552; Hendershott.2@osu.edu

Written by Jeff Grabmeier, (614) 292-8457; Grabmeier.1@osu.edu


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