Can empty-nesters boost housing affordability?

Summary

Summary of "Can Empty-Nesters Boost Housing Affordability?"
The Indicator from Planet Money, Hosted by Darian Woods and Waylon Wong
Release Date: December 19, 2024

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Introduction: Understanding the Silver Tsunami

In the episode titled "Can Empty-Nesters Boost Housing Affordability?", hosts Darian Woods and Waylon Wong delve into the concept of the Silver Tsunami, a term that has gained traction over the past few decades. This term refers to the aging population in the United States, particularly the baby boomer generation. While intended to describe demographic shifts, some critics argue that the term is derogatory, likening older individuals to a natural disaster. Darian acknowledges this perspective, stating, "That's not what we meant." (00:35)

The Silver Tsunami and Housing Affordability

The primary focus of the episode is the hypothesis that the Silver Tsunami could act as a silver bullet for the nation's housing affordability crisis. The theory posits that as empty-nesters—households where the adults are over 55, live without children, and occupy larger homes—downsize or sell their properties, the increased housing supply would drive down home prices, making housing more affordable.

Darian highlights this by explaining, "There is a theory that a wave of empty nesters putting their homes on the market will boost supply and bring home prices down." (00:47)

Expert Insight: Orfe Divangi's Analysis

To evaluate this hypothesis, the hosts consult Orfe Divangi, a senior economist at Zillow. Orfeh provides a nuanced perspective, suggesting that the Silver Tsunami might not significantly impact housing affordability as initially thought.

Current Landscape of Empty Nesters: Orfeh points out that as of 2022, approximately 16% of U.S. households are considered empty nests. These households typically have at least two extra bedrooms and have resided in their homes for over a decade. Interestingly, this number is more than double the number of families currently in need of housing. (03:55)

Geographical Mismatch: One of the critical insights Orfeh provides is the geographical mismatch between where empty nesters reside and the areas most in need of increased housing supply. He explains, "Most of these empty nest households are located in places that are relatively more affordable already and away from the coast where people are kind of flocking for higher paying jobs and more opportunities." (04:18)

Cities like Pittsburgh, Buffalo, Cleveland, St. Louis, and Detroit have a high concentration of empty nesters (over 20% in places like Pittsburgh). However, these cities are already among the most affordable in the country, with more than half of the homes listed being affordable. In contrast, San Jose, Denver, and Portland, which face significant affordability challenges, attract younger populations seeking lucrative job opportunities, particularly in the tech and financial sectors. This divergence means that even if empty nesters downsize, their homes may not alleviate the housing shortages in the most impacted areas. (04:07 - 05:05)

Reluctance to Move: Orfeh also highlights that many older homeowners may prefer to stay put. Referencing a survey by Fannie Mae, he notes, "More than half the group said they will never sell their homes." (05:29) Reasons include having low or paid-off mortgages, making relocation financially unattractive due to current high mortgage rates (over 6%), especially for retirees on fixed incomes.

Potential Downsides of the Silver Tsunami

Even in cases where empty nesters do choose to sell, Orfeh cautions about unintended consequences:

1. Relocation to Expensive Areas: Empty nesters might relocate to desirable, high-cost areas closer to their grandchildren, potentially increasing demand and prices in those regions. (06:45)

2. Limited Impact on High-Demand Markets: Since many affordable-empty nest regions are not the hotspot areas with high housing demand, the influx of homes might not effectively target the areas most in need. (07:00)

Alternative Solutions: Building More and Denser Housing

Given the limitations of the Silver Tsunami as a solution, Orfeh advocates for increasing housing supply through construction, particularly in high-demand coastal regions. This approach involves:

• Building More Housing Units: Addressing the overall shortage by creating additional homes.

• Promoting Denser Housing: Encouraging the development of multi-family units to optimize space utilization.

• Regulatory Reforms: Modifying local regulations that hinder housing development, such as minimum lot sizes and parking requirements. Orfeh remarks, "Getting rid of things like minimum lot size requirements, minimum parking requirements are just, you know, two examples of things that we could really do without." (07:17)

Counterexamples and Local Initiatives

While the broader trend suggests limited impact from empty nesters, there are local initiatives aiming to make affordable cities more attractive to younger populations:

• Pittsburgh's Retention Efforts: A business group in Pittsburgh has initiated programs offering professional networking and social events to retain its 40,000+ college graduates, of which only about half remain in the city after graduating. (07:44)

• Community Building Through Groups: Informal groups like "Pittsburgh Girls Who Walk" facilitate community engagement and help newcomers acclimate. Margot Kimball, the group's founder, shares, "I've even had people come to walks where they're kind of testing Pittsburgh out before making a big move." (08:09)

• Personal Success Stories: Members like Jessie Roos illustrate the positive impact of these initiatives. After returning to Pittsburgh, she found a supportive community through walking groups, helping her build friendships and integrate into the city. Jessie notes, "We walked along the Riverfront Trail, and it just was such a good community." (09:03)

These efforts demonstrate that community engagement and targeted programs can make affordable cities more appealing, potentially attracting younger residents and mitigating some housing affordability issues.

Conclusion: Rethinking Housing Affordability Solutions

The episode concludes that while the Silver Tsunami presents an intriguing idea, it is not a panacea for the housing affordability crisis. Effective solutions require:

• Strategic Housing Development: Building and denser housing in high-demand areas to directly address shortages.

• Regulatory Changes: Streamlining housing development processes by eliminating obstructive regulations.

• Community Engagement: Encouraging young professionals to remain in or move to affordable cities through targeted initiatives and community-building efforts.

As Orfeh succinctly puts it, the path forward lies in building more and building smarter, rather than relying solely on demographic shifts.

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Notable Quotes with Timestamps

• Waylon Wong (00:14): "So there is this term that's been floating around for a couple of decades now, the Silver Tsunami."

• Orfe Divangi (03:19): "Older individuals are expected to either downsize, right? Or when they move on and pass the home onto their kids... maybe affordability could improve."

• Orfe Divangi (04:33): "I think most people prefer to be in New York, Seattle, Los Angeles, San Diego, San Jose, especially young workers in search of the highest paying jobs."

• Orfe Divangi (07:17): "Getting rid of things like minimum lot size requirements, minimum parking requirements are just, you know, two examples of things that we could really do without."

• Jessie Roos (09:03): "We walked along the Riverfront Trail, and it just was such a good community."

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Timestamps

• Introduction to Silver Tsunami: 00:11
• Empty Nesters and Housing Supply Theory: 00:47
• Empty Nesters Demographics: 03:55
• Geographical Mismatch in Housing Markets: 04:07
• Reluctance of Empty Nesters to Move: 05:29
• Potential Negative Impacts of Silver Tsunami: 06:45
• Solutions Beyond Silver Tsunami: 07:17
• Local Initiatives in Pittsburgh: 07:44 - 09:13
• Conclusion and Final Thoughts: 09:38

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Produced by Corey Bridges with engineering by Neil Tevold. Fact-checked by Cierra Juarez. Katkin Cannon is the show's editor.

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Transcript

[NPR Announcer]

Npr.

[Darian Woods]

This is the indicator from Planet Money. I'm Darian Woods.

[Waylon Wong]

And I'm Waylon Wong. So there is this term that's been floating around for a couple of decades now, the Silver Tsunami.

[Darian Woods]

Yes, we've talked about this on our show and it refers to the aging population in the U.S. especially members of the baby boomer generation.

[Waylon Wong]

And you know, some people find the term a bit derogatory because it's likening old people to a natural disaster.

[Darian Woods]

That's not what we meant.

[Waylon Wong]

It's pretty rude.

[Darian Woods]

I guess so now that you mention it.

[Waylon Wong]

Nevertheless, the term has become a popular shorthand for all the big cultural and economic changes that stem from this generation getting older.

[Darian Woods]

And when it comes to housing, the so called Silver Tsunami has sometimes been seen as a silver bullet to address a major issue, housing affordability. There is a theory that a wave of empty nesters putting their homes on the market will boost supply and bring home prices down.

[Waylon Wong]

Today on the show we talk to one economist who's vetted this hypothesis and he tells us why the Silver Tsunami solution to housing affordability might be more of a red herring. That's coming up after the break.

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[Waylon Wong]

Weekend plans are, Darian, but I do know where you are likely to find Orfe Divangi. He's a senior economist at Zillow.

[Orfe Divangi]

I personally look at the housing market all the time. I love housing. That's why I work at Zillow. And so I'm the kind of guy that takes my kids to look at housing on the weekends, look each to their own.

[Darian Woods]

I will not be there. And over at Zillow, Orfeh and his colleagues have been wrestling with a big topic.

[Orfe Divangi]

We have a massive affordability challenge across the country and so we're looking for solutions.

[Waylon Wong]

And there was one fix that Orfeh kept hearing about from people in the housing industry, that silver Tsunami.

[Orfe Divangi]

Older individuals are expected to either downsize, right? Or when they move on and pass the home onto their kids, potentially their kids would not want to live in these older, bigger homes and actually put them on the market for sale. And so a lot of people have thought maybe if we get the silver Tsunami, maybe affordability could improve.

[Darian Woods]

Orfeh says that as of 2022, about 16% of households in the US were empty nests. This is defined as households where people are at least 55 years old, do not live with any children, have at least two extra bedrooms, and have been living there for at least a decade.

[Waylon Wong]

And at least one of those bedrooms has been turned into a sewing room. Orfeh also calculates that the number of empty nest households in the US is more than double the number of families that need housing.

[Darian Woods]

So just looking at the nationwide figures, you might think, great, these downsizing empty nesters can sell their homes to families that need housing. But Orfeh says, not so fast.

[Orfe Divangi]

What we learned in this research is that most of these empty nest households are located in places that are relatively more affordable already and away from the coast where people are kind of flocking for higher paying jobs and more opportunities.

[Waylon Wong]

So let's break it down a bit more. Orphe's research identified large housing markets where there are a lot of empty nest households. Topping the list was Pittsburgh. Over 20% of households there are empty nesters. Others on the list include Buffalo, Cleveland, St. Louis and Detroit.

[Darian Woods]

These metro areas are already some of the most affordable in the country. Zillow research shows that in those cities we mentioned, more than half of the homes listed for sale are considered affordable. That means people who live there spend less than 30% of their income on housing.

[Waylon Wong]

Or Face's cities that are considered unaffordable are places like San Jose, Denver and Portland. These cities are located pretty far away from where the empty nest households are. They're also where younger people tend to move in search of job opportunities. As a result, a lot of coastal cities have a relatively high proportion of Gen Z or millennial households. That translates to fewer empty nest households than the national average.

[Orfe Divangi]

For now, I think most people prefer to be in New York, Seattle, Los Angeles, San Diego, San Jose, especially young workers in search of the highest paying jobs, which are basically in the tech industry and the financial sector.

[Darian Woods]

So there is this geographical mismatch at play here. Even if downsizing empty nesters put their homes on the market, they will be selling in cities that are already relatively affordable and where younger workers aren't choosing to move.

[Waylon Wong]

Orfeh points out a couple other potential snags in the Silver Tsunami solution. One is that a lot of these older homeowners may not actually want to move. Last year, the mortgage giant Fannie Mae conducted a survey of homeowners age 60 and over. More than half the group said they will never sell their homes.

[Darian Woods]

And there are different reasons for staying. One is that many of these older homeowners either have a low mortgage rate or they already paid off their homes. Right now, mortgage rates are still over 6%, even with the federal Reserve lowering interest rates, as it did on Wednesday. If these empty nesters sell, that could mean taking on higher mortgage costs for a new home.

[Waylon Wong]

Not a great financial move for a retiree who might be on a fixed income. Another issue is where empty nesters who do sell end up moving.

[Orfe Divangi]

To a lot of these older folks, they probably would want to live closer to their grandchildren, where on the coasts.

[Darian Woods]

In other words, they could end up in expensive areas, and that could actually add to the upward pressure on housing prices.

[Waylon Wong]

Okay, so in Orfeh's estimation, the silver tsunami is not going to make much of a dent in the country's housing affordability problem. He says the solution is to build more housing and denser housing, especially on the coasts. And that means changing local regulations around things like lot sizes and parking.

[Orfe Divangi]

I mean, look, I am the type of guy that doesn't like mowing the lawn anymore, and I think most people my age feel the same way. So we don't really need big lots anymore. Family size has been shrinking. Most Americans don't actually need a big house anymore either. And so getting rid of things like minimum lot size requirements, minimum parking requirements are just, you know, two examples of things that we could really do without.

[Darian Woods]

And there's still the issue of geographical mismatch that Orfeh's research highlights. You know, those affordable non coastal cities that aren't attracting young workers.

[Waylon Wong]

Take Pittsburgh. That's one of those affordable cities we mentioned earlier. A business group there says that only around Half of the area's 40,000 college graduates end up sticking around. This group has created a program that offers professional networking and social events for young people in the city.

[Darian Woods]

There are also more informal ambassadors like Margot Kimball. A couple of years ago, she started something called Pittsburgh Girls who Walk. Like the name suggests, it is a group of women that take walks together around the city. Margo says she sometimes meets people, people who are potential transplants.

[Margot Kimball]

And I've even had people come to walks where they're kind of testing Pittsburgh out before making a big move. So I usually try to keep those people a little bit of extra company on walks and kind of find out what they're looking for in a city if they are thinking of making a big move. Because, you know, there is a community here for just about everything.

[Waylon Wong]

One member of Pittsburgh Girls who Walk is Jessie Roos. She was raised in the area and left for college. When she returned to Pittsburgh as an adult, she wanted to make the city new to her again, so she joined her first walk.

[Jessie Roos]

We walked along the Riverfront Trail, and it just was such a good community. Right off the bat when I left, I remember texting my partner at the time, like, oh, I think I made some friends.

[Darian Woods]

So Margot and Jessie, are these counter examples to the broader dynamics that Orfeh's identified? These are young professionals who have settled in an affordable city of away from the coasts. But if they get their way, they may persuade some of their peers to join them. Jessie says some of her college friends, after trying out the expensive in demand coastal cities like Los Angeles seem to be open to the possibility.

[Jessie Roos]

It's kind of just seeing that shift of going from very expensive cost of living to wanting to settle into a place that's a little bit more affordable.

[Waylon Wong]

This episode was produced by Corey Bridges with engineering by Neil Tevold. Fact checked by Cierra Juarez. Katkin Cannon is our show's editor and the indicator is a production of npr.

[Darian Woods]

Wait, was your chartered bedroom turned into a sewing room?

[Waylon Wong]

WAYLON actually, no. It was perfectly preserved.

[Darian Woods]

Really?

[Waylon Wong]

Yeah, yeah, yeah. Down to the stuffed animals, the books.

[Darian Woods]

The teen idols from the 90s on the wall.

[Waylon Wong]

Jonathan Taylor Thomas, I'll never forget you.

[Darian Woods]

They should turn this into a museum.

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