From the increasing urbanization of emerging nations in Africa to the graying of the U.S. population, demographic shifts will have a major impact upon demand for various types of development over the next few decades, according to a demographic analyst who spoke at the ULI Fall Meeting in Boston.
Decision-makers in the real estate sector need to focus harder on those changes and their implications, said Leanne Lachman, president of real estate consulting firm Lachman Associates, and an executive-in-residence at Columbia University’s business school.
“Too few people are paying attention to who’s going to be using that real estate,” said Lachman, who also is a ULI Foundation Governor and ULI trustee. In an interview after her presentation, Lachman said that many leaders rely mostly on supply information from brokers, rather than looking at changes in demand that are driven by population trends and shifts.
Lachman said that the United States is becoming increasingly similar to the rest of the developed world, with a declining birthrate, an aging population, and fewer people moving from one region to another. That translates into lower future real estate demand, she said, with current and future construction in the United States primarily serving replacement demand.
In contrast, Lachman said that emerging markets—particularly in Africa, where nations such as Uganda and Nigeria have high fertility rates—will have the strongest demand for development.
Urbanization in developing nations, as more and more people move from rural areas into fast-growing cities, is a positive trend, because family income tends to increase as a result, Lachman said. In addition, women living in cities have fewer children, in part because of opportunities to work outside the home, and children are more likely to attend school and ultimately earn higher incomes than their parents.
Lachman said that urbanization is not only socially advantageous, but also “the single most important driver for real estate development in the emerging world.”
In addition to the need for more homes for the growing urban population, urbanization creates an intense demand for shopping centers, budget hotels, and infrastructure to support them, she said.
With the African workforce growing rapidly, demand for worker housing is increasing, Lachman said. The shifts also create more demand for retail in urban areas, and warehouses and distribution centers to support the supply chain. Also, there is a growing need for student housing in national capitals, where universities often are clustered, and for new infrastructure.
In the developed world, where the number of people 65 and older—and particularly those 80 and older—is growing fast, supportive housing for seniors is becoming an increasingly important issue.
In the United States, the median age is now 37.9 years, compared with the global median age of 30.1 years, Lachman said.
However, the surge in demand for senior housing probably will not happen until the early 2030s, when the oldest baby boomers will be in their mid-80s.
“People just think that because the boomers are retiring, that they’re all going to go to age-restricted housing,” Lachman noted. “I think most people misunderstand that most people go to assisted living at 85, and the boomers are a long way from that. So, it’s really 15 years before the serious demand comes.”
But that does not mean that developers can afford to ignore older people. Even though they recently have been eclipsed by millennials in terms of population share, boomers remain the most influential generation in terms of economic power, with control over 55 percent of the nation’s net worth and the largest share of its consumer spending.
While some boomers have retired, many are still working and are in the midst of their peak earning years, Lachman said.
“Because there are so many boomers, a small percentage with a particular interest still creates a significant demand,” Lachman explained. For example, boomers retiring to rural areas have created mini-booms in rural parts of some states.
Many younger boomers and older members of generation x are parents of millennials, and their willingness to allow their grown children to continue living with them and to provide economic support is also a significant trend that developers have to consider. She said that “age 30 is what 20 used to be, in terms of adult responsibility.
“We’re starting to see growth in multigenerational housing,” Lachman said. “It’s common among immigrant families but not exclusive to them. Some homebuilders are targeting that need.”
When millennials eventually do strike out on their own, their preferences are often misunderstood by the real estate sector, Lachman said. Though the stereotype of millennials is that they gravitate to urban cores, only slightly more than a third (37 percent) identify as city dwellers. Nearly as many (36 percent) choose to become suburbanites, while about one in four are oriented to small-town living.
Among millennials, “only 13 percent are downtowners,” Lachman explained. “The press would have you believe the proportion is much higher. That’s because journalists find the downtown lifestyle appealing.”
Most millennials still aspire to homeownership, according to Lachman, but they often lag behind their own unrealistic expectations for when they will buy a place of their own. Compared with boomers at their age, millennials are more likely to prioritize travel and spend more of their income on it.
“They want their friends to go with them to Bali, and they’re going,” Lachman said.
Lachman said that some shifts have been dictated by changes in the economy. In an increasingly digital world, companies and jobs tend to migrate to where workers are located. That trend benefits cities such as Boston, which produces large numbers of college graduates who want to remain there afterward, so that nearly half of the city’s residents have at least a bachelor’s degree.