Some baby boomers would like to downsize their large home, but feel it doesn’t make financial sense. Single family homes in Dumfries, Virginia are seen here last year.
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Some baby boomers would like to downsize their large home, but feel it doesn’t make financial sense. Single family homes in Dumfries, Virginia are seen here last year.
Amanda Andrade-Rhoades/The Washington Post via Getty Images
Among the many hard truths for those trying to enter America’s brutal real estate market, here’s one: Baby boomers continue to own many of the nation’s large homes, even after their households dwindle to one or two people.
Baby boomers with empty nesters own twice as many homes with three or more bedrooms nationwide as millennials with children, according to a recent Redfin analysis. This means these larger homes are not coming onto the market, limiting supply for younger generations who could use these extra bedrooms.
Some baby boomers, the generation now aged 60 to 78, are happy in their larger homes, using the extra bedrooms for leisure and visiting family. Others say they want to downsize, but it just doesn’t make financial sense.
Some want to downsize, but the numbers don’t add up
Sherry Murray, 73, and her husband, 80, bought their home in Pittsburgh’s North Hills in 1991 for $240,000. There are four rooms, some of which are no longer used. Many of his friends are in the same boat.
“What a lot of us have done is not walled off the extra rooms, but closed the doors, and we try not to have to maintain them,” she says. “It’s just too much room at this point.”
The house is paid for, and Murray has wanted to downsize for some time, but she says homes that match what she’s looking for — 2,000 square feet, all single story, in the same suburban area — sell quickly and for a lot of money. .
So they stayed there.
“You don’t want to be economically stupid. If my house is worth even $650,000, I don’t want to spend $1.1 million to significantly reduce it, knowing that on top of that I’ll probably having to pay a little bit (homeowners association),” she said.
Smaller homes may cost more if they are newer or part of a community that offers additional services. Some metropolitan areas have few one-story homes, making them hot commodities.
Multifamily buildings can offer single-level living, but some baby boomers are reluctant to pay condo fees. A mixed-use apartment complex is under construction in St. Petersburg, Florida, in February.
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Multifamily buildings can offer single-level living, but some baby boomers are hesitant to pay condo fees. A mixed-use apartment complex is under construction in St. Petersburg, Florida, in February.
Octavio Jones/Bloomberg via Getty Images
Some homeowners are also affected by what is known as the mortgage lock-in effect. While 54% of baby boomer homeowners own their homes free and clear, according to Redfin, most of those with mortgages have low rates. So it doesn’t make much sense to take out a new mortgage, with rates now hovering around 7%.
“It’s just a stupid economic decision to spend so much extra money to get a lot less,” Murray says.
Across the country, many baby boomers are facing their own version of this calculation: It may be cheaper — and more attractive — to stay in their current large home than to sell it and move to something smaller.
This doesn’t just concern young buyers.
“There’s a real housing mismatch for older homeowners. They don’t physically or functionally fit the house they’re in,” says Gary Engelhardt, an economist at Syracuse University who studies aging and housing markets . “That’s because it’s multi-story living. It’s stairs. There’s other maintenance work as well.”
Engelhardt says this is a serious concern because it can lead to things like falls. “And falls can be very devastating, they could have very devastating health consequences, particularly for older people,” he says. “In general, we would like older homeowners … to be better suited to their homes than we currently are.”
So what could we do?
According to Engelhardt, there are essentially two policy approaches to dealing with what is happening.
First, he says, is to provide grants or tax credits for home modifications that allow seniors to age in their homes. While this could make current seniors’ housing safer, it would not put those homes back on the market.
Second, encourage the construction of housing that is well suited to older Americans, says Engelhardt: “You encourage the construction of new residential units that will be ADA compliant, that will have universal design and all the types of features that lend themselves to a project. better suitability of features for older ages.
For example, the government could create a tax credit to encourage developers to build accessible housing, similar to the low-income housing tax credit that encourages the construction of affordable housing.
Jenny Schuetz, a housing policy expert at the Brookings Institution, says that to try to encourage older people to move out of homes that are now too big for them, different tools are needed based on their geography and financial resources. For example, a low-income owner of a deteriorating townhouse might be willing to trade it in for a newer, smaller apartment in an elevator building, if there were a program to do so.
But longtime California homeowners who have seen their property values soar would likely need a different approach. There, Proposition 13 strictly limits property tax increases — so many longtime homeowners pay taxes on a small fraction of their home’s value. This has created its own lock-in effect that discourages owners from selling.
Build more attractive housing for seniors
There are other policy changes that could make it easier to build life-stage-appropriate housing and thus encourage baby boomers to downsize.
“I think one of the things we know to be true is that older people want to be able to age in their community,” says Danielle Arigoni, executive director of policy and solutions at the National Housing Trust. It’s where they already have friends and neighbors, doctors and bus routes they know – a familiarity that makes aging in their community possible.
Some baby boomers find that when they want to downsize, there are no smaller options in their neighborhood. Single-family homes were seen in a San Marcos, Texas, neighborhood last month.
Jordan Vonderhaar/Bloomberg via Getty Images
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Some baby boomers find that when they want to downsize, there are no smaller options in their neighborhood. Single-family homes were seen in a San Marcos, Texas, neighborhood last month.
Jordan Vonderhaar/Bloomberg via Getty Images
But many areas, including neighborhoods where many baby boomers live, have zoning that only allows single-family homes. This means that when older people decide their current home is too big, they must leave their neighborhood.
“People want to be able to age in their community, but there are very few options available for those who want to do that but want to downsize,” Arigoni says.
So if cities and states want to encourage more right-sizing, they could change their zoning rules to allow more housing types in all neighborhoods. (Cities across the country are already working to change their zoning rules, in part to increase supply and reduce housing costs.)
Municipalities can also authorize and encourage accessory dwelling units (ADUs), secondary dwellings such as cottages with backyards or basement apartments. Arigoni says these offer many benefits to seniors.
For example, ADUs can be built on a single level, without any steps. Homeowners can move into the new, smaller ADU on their property and earn money by renting the larger home, allowing them to stay in the neighborhood they love, while still adding a home to the rental market. The extra space can also serve as accommodation for caregivers or family members.
Another way to unlock supply in low-density neighborhoods is to allow owners with large lots to divide them, thereby generating money for the owner while creating space for the construction of a new House.
More housing is coming: 1.6 million homes and apartments are currently under construction in the United States. This offer should make it easier for buyers to find housing that suits them.
Meanwhile, many baby boomers are sensitive to what younger generations are facing.
“I really feel sorry for them,” said Guarang Patel, 67, a Maryland homeowner who hopes to downsize and be closer to his adult children. “They should also have equal opportunities.”
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