Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / The Housing Market Impact of Aging Populations
Transcript
- Lucas: We talk a lot about birth rates and fertility on this show — the collapse in South Korea, Japan's one-point-two, Italy's care crisis. But there's a secondary effect of aging populations that doesn't get nearly as much airtime, and it's quietly reshaping one of the largest asset classes in the world. Luna: You're talking about housing. Lucas: Exactly. When a population gets older, the housing market doesn't just adjust — it transforms. And in the United States right now, we're watching something unprecedented play out. There are roughly 40 million Americans over the age of 65 living in single-family homes, and about 80 percent of them own their homes free and clear. No mortgage. Luna: So they're sitting on enormous equity, and they have no financial incentive to move. Lucas: Right. And that's the core of what's sometimes called the 'silver tsunami' — except it's not a tsunami of boomers selling and downsizing. It's the opposite. They're staying put. The average length of time a homeowner stays in their house in the US has gone from about six years in the 1990s to nearly thirteen years now. For older homeowners, it's often two decades or more. Luna: Which means fewer homes ever come on the market. When supply is already constrained, that's a huge deal. Lucas: It is. And it's one reason the US housing market has felt so frozen. Even as mortgage rates have come down a bit from their 2023 highs, inventory remains historically low. There's a structural shortage because the homes that exist are occupied by people who aren't going anywhere. Freddie Mac estimated the US is short somewhere between three and five million homes. A significant chunk of that shortfall is attributable to older households aging in place. Luna: But isn't that a choice? I mean, people should be able to stay in their homes if they want to. Lucas: Absolutely — and that's the tension. No one is saying seniors should be forced out. But the consequence is that younger families can't find starter homes. And that has knock-on effects: delayed household formation, lower fertility, reduced mobility for the labor market. It becomes a demographic feedback loop. Luna: Let's talk about the economics for a second. If you're a senior with no mortgage, your monthly housing costs are basically just property taxes, insurance, and maintenance. That could be a thousand dollars a month or less. Meanwhile, a millennial buying that same house would face a $3,000 or $4,000 monthly payment at current rates. Lucas: So the senior has a massive cost advantage, and property taxes in many states are capped for long-term owners — California's Proposition 13 is the classic example. That creates a lock-in effect. Move to a smaller condo, and your property tax bill might triple because your new assessment is based on current market value. So you stay. Luna: It's a rational decision, but it's bad for the overall market. Lucas: Now, the interesting comparative case is Japan. Japan has the oldest population on earth — a median age over 48 — and its housing market has behaved completely differently. In Tokyo, for example, housing is relatively affordable by global city standards, even though the population is aging rapidly. Why? Luna: Because Japan builds. A lot. Lucas: That's the key. Japan constructs about 1.5 million new housing units per year, despite a shrinking population. They have permissive national zoning laws, a large prefabricated housing industry, and a cultural attitude that houses are depreciating assets — like cars — not permanent stores of value. The average lifespan of a Japanese house is about 30 years. In the US, it's more like 70 or 80. Luna: So in Japan, older homeowners don't 'age in place' in the same way, because the house itself is expected to be torn down and replaced. Lucas: Exactly. And the tax system reinforces it. In Japan, property taxes are based on land value, not structure value, and there's a depreciation schedule for buildings. So a 30-year-old house is worth almost nothing on the books. There's no financial penalty for selling and moving. Meanwhile, in the US, property taxes are based on assessed value of both land and structure, and there's no depreciation. So an old house can still be expensive from a tax perspective, but the owner's cost basis is low because they bought decades ago. Luna: It really does feel like American policy is designed to keep seniors in place, even at the expense of the broader market. Lucas: There's a phrase for this — 'housing gridlock'. And it's not just a US problem. Canada, Australia, the UK — all have similar dynamics. But the US is particularly acute because of the sheer size of the baby boom cohort and the structure of the single-family zoning that dominates most suburbs. You have large-lot, single-family neighborhoods where the average resident age is creeping toward 70. Luna: What about the idea that older homeowners will eventually have to sell — for health reasons, or to fund retirement? Lucas: It's a valid point, but the data suggests that most seniors don't sell until they move into assisted living or pass away. And that's happening later. The average age of entry into a nursing home in the US is about 81. So you're talking about people holding onto homes well into their late 70s and early 80s. And even then, when they do sell, the home often goes to an investor or gets torn down for a McMansion — not a starter home. Luna: So what are the policy levers? Can anything change this? Lucas: There are a few ideas. One is property tax reform — removing the lock-in effect by capping annual increases for all homeowners, not just long-term owners, or by allowing seniors to transfer their tax base to a new home. Some states have 'portability' provisions, but they're rare. Another is zoning reform — allowing accessory dwelling units, or granny flats, so that seniors can stay on their property but create additional housing for younger families. Luna: That's actually happening in places like Oregon and California — they've legalized ADUs statewide. Lucas: Right. And it's a start. But the scale of the problem is enormous. Even if every single-family lot in a city like Portland added one ADU, you'd still be talking about maybe a 10 percent increase in housing stock over a decade. Meanwhile, the backlog of demand is much larger. Luna: There's also a financial product angle — reverse mortgages were supposed to help seniors tap equity without moving, but they've never really taken off. Too much complexity, too much risk. Lucas: That's a good point. The reverse mortgage market has been plagued by high fees, confusing terms, and a lot of bad actors. The Home Equity Conversion Mortgage program — that's the fha insured version — has seen volumes drop by more than half since its peak in 2009. So it's not the solution. Luna: What about building more housing overall? If supply were plentiful, wouldn't the lock-in effect matter less? Lucas: That's the Japan lesson. If housing is abundant and affordable, then even if seniors stay put, it's not a crisis. The problem is that many US cities have made building new housing incredibly difficult — through zoning, environmental review, community opposition. So we have a double bind: low turnover and low construction. Luna: Before we dig deeper into solutions, I want to step back for a moment. This episode covers exactly the kind of analysis that takes time and resources to produce. We keep the show ad-free by design — it's something we believe in. And listener support is what makes that possible. Lucas: Yeah, it really is. If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Just a small way to keep these conversations going. Luna: It genuinely does. And it means we can keep digging into topics like this without any sponsor influence. So — thank you to everyone who already chips in. Lucas: Alright, back to housing. So we've established the problem: older homeowners staying put, gridlock, and not enough construction. But there's another demographic twist that's often overlooked, and it has to do with where older people are choosing to live. Luna: Are they clustering? Lucas: Very much so. The phenomenon of 'concentrated aging' — entire neighborhoods where the median age is 55 or 60. In Florida, Arizona, parts of the Carolinas. And when that happens, the local economy shifts. You get more healthcare services, more golf courses, fewer schools. That's fine for the retirees, but it can create a mismatch for younger workers who might want to move there for jobs. Luna: And property taxes in those areas often get squeezed because school funding — which relies heavily on property taxes — declines when fewer families with kids live there. Lucas: Exactly. So you have a fiscal dynamic where aging communities need more services — police, fire, roads — but the tax base is shrinking or static because home values may not rise as fast. Some municipalities in upstate New York and the Rust Belt are already facing this. Luna: There's also the question of inheritance. The biggest intergenerational wealth transfer in history is underway — baby boomers are expected to pass on something like $80 trillion to their heirs over the next two decades. A lot of that is housing equity. Lucas: Right. And that could eventually unlock supply, but with a lag. When a senior passes away and the house is inherited, the heir often sells it — especially if they don't want to live there. But that's a slow process. And in some cases, the house is sold to an investor who turns it into a rental, which doesn't help the for-sale market for first-time buyers. Luna: So we're looking at a multi-decade adjustment. It's not going to resolve quickly. Lucas: No. And that's why the demographic lens is so critical. Housing isn't just about interest rates and construction costs — it's about who lives where, and for how long, and what incentives they have to move. Right now, the incentives for older Americans are overwhelmingly stacked toward staying. Luna: One more thing — the pandemic accelerated a lot of this. Remote work allowed some older workers to retire earlier, but it also meant they didn't need to move closer to jobs or family. They just stayed. Lucas: That's a great point. The pandemic-induced 'great reshuffling' saw a lot of people move from cities to suburbs, but for retirees, it often meant staying put or moving to second homes. So the lock-in effect actually got worse. We saw home sales volumes drop in 2022 and 2023, and they've only partially recovered. Luna: Where do you see the most room for policy change in the next five years? Lucas: I think zoning reform is picking up momentum — cities like Minneapolis and Portland have eliminated single family only zoning. State-level preemption bills are being debated in several states. If we can make it easier to build small, attached homes — townhouses, duplexes, ADUs — we can start to chip away at the shortage. But it's a political battle. Luna: What about the federal level? Any role for Washington? Lucas: Potentially through tax incentives. Senator Wyden has proposed a 'move for work' tax credit that would help seniors cover moving costs if they downsize. There's also talk of expanding the standard deduction for property taxes to reduce the lock-in effect. But nothing has passed. The political will isn't there yet. Luna: So it's really a state and local story. Lucas: For now, yes. And the data from Japan suggests that the most powerful tool is simply allowing more construction. Japan's permissive national zoning law, passed in the 1960s, is the reason Tokyo has been able to keep housing affordable despite a population that is both aging and, until recently, growing. The lesson is that supply matters, and regulation matters more. Luna: It's a reminder that demographics aren't destiny — policy choices matter a lot. Lucas: Exactly. And that's the takeaway I'd leave listeners with. The silver tsunami doesn't have to mean a housing crisis. But right now, in most of the developed world, our policies are making it worse. If we want different outcomes, we need different rules. Luna: Thanks for listening to The Demographics Podcast with Fexingo. We'll be back next week with another angle on the forces shaping the economy. Lucas: See you then.