Multi-Generational Housing: A Multi-Faceted Issue

This long-form article was written by Jessica Lautz, Director of  Member and Consumer Survey Research, for the Richard J Rosenthal Center for Real Estate Studies at REALTOR® University and is used here with their kind permission.  It first appeared in the Journal of the Center of Real Estate Studies, Vol 2 No. 2.

Introduction

Multi-generational housing is not a new concept, but a concept   long forgotten while households made the shift towards nuclear families living in separate homes. Recently, data released by the U.S. Census Bureau, Pew Research, Generations United, and the National Association of REALTORS^® suggests a trend of moving back to multi-generational households is now underway. While there are no doubt societal implications of this trend, this article will focus on the housing implications and will attempt to make sense of the data.

Analysis

Understanding the definition of a multi-generational home is important to understanding the depth and breadth of the topic. Data collected by the U.S. Census Bureau defines multi-generational households as “a family household consisting of three or more generations. These include families with either a householder with both a parent and a child, a householder with both a child and grandchild, a householder with a grandchild and parent or a four-generation household…”.[1] The National Association of REALTORS^®  (NAR) recently started collecting data on recent home buyers who purchased a multi-generational home and defined it as “a home that will house more than you and children under the age of 18 (such as adult siblings, adult children, and/or grandparents, etc.)”.[2]  Data collected from AARP defines a multi-generational household as “Householder, child, and grandchild; Householder with parent; Householder with parent and child; Householder with grandchild; Householder with parent; child, and grandchild; Householder with parent and grandchild. It does not include households comprised of parents and children, regardless of the age of the child.”[3]

In 2010, the AARP Public Policy Institute issued a fact sheet titled Multigenerational Households Are Increasing, in which they conducted an analysis of the Current Population Survey. “In 2008, 6.2 million intergenerational households resided in the United States (5.3% of all households.) That number jumped to 7.1 million households by 2010 (6.1% of all households.) The increase in these two years represents a faster rate of growth than the previous eight years combined.”[4] In September 2011, Generations United released the report Family Matters: Multigenerational Families in a Volatile Economy based on a survey conducted by Harris Interactive. The survey was based on 2,226 U.S. residents over the age of 18 and found that 136 of these individuals responded that they lived in a multi-generational household. [5] Among online survey panelists who lived in a multi-generational household,  66 percent reported that “the current economic climate was a factor in their family becoming a multi-generational household…”.[6] Because the Generations United data is based on a survey panel, they cite figures from Pew Research that 51.4 million—nearly one in six—Americans of all ages live in a multi-generational home.[7]

Data from Pew Research has been updated and is based on an analysis of U.S. Census Bureau data.  It is weighted based on the American Community Surveys.[8] In the Pew Research report, released in July 2014, a staggering “57 million Americans or 18.1% of the population of the United States, lived in a multi-generational family household in 2012, double the number who lived in such households in 1980.” The report, In Post-Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living,  details the fast pace in which young adults ages 25 to 34 living in multi-generational homes have grown to be the largest segment living in these household types—even outpacing those who are 85 and older.[9] Data released from the U.S. Census Bureau in 2013 reports that 4.6 percent of family households live in a multi-generational home.[10]

Regardless of the report cited or definition used, this is a household type that is increasing in presence and is increasingly being discussed by real estate agents and brokers, home builders, and economists. The topic stirs discussion surrounding student loan debt, the perception of housing, immigration, even the American Dream of homeownership. Understanding the needs and potential growth of these types of homes is essential for real estate professionals.

In 2013, the National Association of REALTORS^® first started collecting data on the share of home buyers who purchased a home for a multi-generational household in the annual Profile of Home Buyers and Sellers survey. Overall, 14 percent of recent buyers purchased a multi-generational home. Twenty-four percent of multi-generational buyers bought this type of home, because children over the age of 18 were moving back into the home; 24 percent purchased for cost savings; 20 percent purchased for health/caretaking of aging parents; and, 11 percent purchased to spend more time with aging parents. [11]

Exhibit 1

Source: National Association of REALTORS^®, 2014 Home Buyer and Seller Generational Trends, March 2014.

The largest population of home buyers who purchased a multi-generational home was among Younger Boomers. Twenty-two percent of buyers who were born between 1955 and 1964 purchased a multi-generational home. The most commonly cited reason for this household type was due to children over the age of 18 moving back into the home, at 38 percent.[12]

Exhibit 2

Source: National Association of REALTORS^®, 2014 Home Buyer and Seller Generational Trends, March 2014.

NAR data shows the typical home buyer who purchased a multi-generational household was 50 years old, and had a median household income of $85,800 in 2012. Buyers of multi-generational households are more ethnically diverse than buyers who do not buy multi-generational homes—75 percent of buyers of multi-generational homes were white/Caucasian compared to 88 percent of buyers who did not purchase a multi-generational home. The share of home buyers who purchased a multi-generational home varies significantly by sub-region. The buyers were typically buying a home that was 2,150 square feet and most (82 percent) were buying a single family home. Aside from the desire to own their own home, they were buying for a larger home, to accommodate family changes, and to be closer to friends and family.[13]

Exhibit 3

Source: National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013.

Exhibit 4

Exhibit 5

Source: National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013.

*States within sub-regions are based on U.S. Census Bureau definitions

The Pew Research data and the National Association of REALTOR^®data suggest the boomerang population of Gen Y may be the key to multi-generational housing growth. Data indicate that these young adults want to be homeowners, but there may be other factors holding them back. According to data from Fannie Mae, 59 percent of young renters (defined as 18 to 39) believe owning a home makes more sense, but 73 percent of young renters also believe it would be difficult to get a mortgage today. [14] Additionally, 90 percent of young renters are likely to buy at some point, but the majority have “…insufficient assets to cover a 5% down payment plus closing costs on a typical starter home…”.[15] It is promising that younger renters in Gen Y and Gen X do still want to own a home. It is not necessarily the “sharing generation” many the media outlets have led us to believe.[16]

Given this research, one of the surprising results from the 2014 Home Buyer and Seller Generational Trends report is that the share of Gen Y buyers (born between 1980 and 1995) is just slightly higher than the other generations, at 31 percent. [17] The expectation is that Baby Boomers would still outweigh Gen Y as buyers given the average age from 1981 to 2013 for the typical first-time buyer is 31.[18] If there were no economic constraints, Gen Y would soon overtake Baby Boomers as the largest home buying segment.

However, there are economic conditions at play. Restricted access to credit, slow wage growth, and lack of employment opportunities are holding many potential first-time buyers back, and living with other family members has become a comfortable alternative. For good reason. Those aged 65 and older have historically been at retirement age. According to the Census Bureau the percent of workers aged 65 and older who were employed increased to 16.2 percent in 2010 from 14.5 percent in 2005, while the share of 20 to 24 year olds who were employed decreased to 60.3 percent from 68 percent  during the same time period.[19] The annualized income growth from 2008 to 2012 has remained flat for those 25 to 34 and has increased just 0.3 percent for ages 35 to 44.[20] During the same time period income growth for those aged 45 to 54 has risen 0.8 percent, 0.6 percent for those aged 55 to 64, and 3.2 percent for those 65 to 74.[21]

While ages and employment grow for those outside of Gen Y and Gen X, the younger generations are disproportionate holders of the $1.12 trillion in student loan debt. Thirty-nine percent of the borrowers are less than 30, and 28 percent of the borrowers are aged 30 to 39.[22] Eleven percent of student loans were 90 days delinquent in the second quarter of 2014, up from 6.3 percent in 2003. In comparison, the delinquency rate for all debt is 6.2 percent.[23]

Those who are successful buyers have experienced stricter lending conditions and access to credit in recent years. As such, incomes of successful first-time buyers increased from $54,800 in 2002 to $67,400 in 2012.[24] Higher income home buyers are also less likely to be delinquent on loans such as student loans and have the ability to pay them back faster than their lower-income peers.

Exhibit 6

Source: National Association of REALTORS^®, Profile of Home Buyers and Sellers, Historical data 1981-2013.

Among recent successful home buyers, 12 percent cited saving for a home as the most difficult part of the home buying process, but this increases to 20 percent among Gen Y buyers and 15 percent among Gen X buyers.[25] Of the 12 percent that cited difficulty saving, 43 percent attributed student loans as the expense that delayed saving for a downpayment.[26] Among the 20 percent of Gen Y who cited saving for a home as the most difficult step, 56 percent cited student loan debt as the factor that made it more difficult to save.[27] Among the 15 percent of Gen X who cited saving for a home was the most difficult step, 35 percent cited student loan debt as the factor that made it more difficult to save.[28]

Even younger   repeat buyers who already owned a home face some headwinds in purchasing another property. Gen Y and Gen X sellers who bought another property are more likely to state that they wanted to sell their home but could not sell when they wanted to and waited or were stalled because the home was worth less than the mortgage—17 percent among Gen Y and 19 percent among Gen X.[29] This further adds to their financial problems. However, it is promising that sellers ultimately went on to buy a home instead of moving and renting.

Exhibit 7

Source: National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013.

Gen Y and Gen X buyers are often making the most financial sacrifices to buy a home of their own, but they are also the most optimistic that, when they are a successful home buyer, that their home is a good financial investment. More than half made financial sacrifices, such as cutting spending on luxury items or non-essential items, on entertainment, on clothes, cancelling vacation plans, and earning extra income through a second job. [30] When asked if the buyer thought the home was a good financial investment, 87 percent of Gen Y and 82 percent of Gen X buyers did feel their home was a good financial investment compared to 74 percent of the Silent Generation.[31]

Conclusion and Implications

Renters and those moving in with relatives ultimately want to buy a home. They recognize the long term financial value of owning, and the American Dream of homeownership is still very much alive. However, stagnant wage growth, coupled with a difficult job market, tightened lending standards, and student loan debt potential buyers took on to invest in their human capital, has made it difficult to purchase a home. For now, multi-generational housing is the retro trend that is more achievable for some American families.

For housing, this trend means there are implications for builders. The value of mother-in-law suites or rather “Gen Y college educated son/daughter suites” have increased among recent home buyers. In 2004 only two percent of recent home buyers found buying a home with an in-law suite very important.[32] That doubled in 2013 to four percent of buyers valuing in-law suites as very important.[33] While the share of buyers who find an in-law suite very important has stayed the same since 2007, at four percent, the dollar value has increased. Among buyers who bought a home without an in-law suite in 2007, they were willing to pay $1,900 more for a home with an in-law suite; in 2013 that rose 54 percent to $2,920.[34]

According to a Pulte Group survey conducted in 2012, adult homeowners who are over the age of 35 and who have children ages 16 to 30 living with them or who have living parents, 14 percent have an adult son or daughter living with them; and, 15 percent have an aging parent living with them.[35] Both sets of respondents expect the share with adult children residing at home and the share of aging parents living with them to double.[36]

When respondents were asked how they will house a larger family, change seems more necessary among those with aging parents living with them or anticipating living with them—72 percent plan to renovate or move. That compares to 49 percent of homeowners who have an adult child living with them who are anticipating a move.[37]  “Respondents noted that the most important features to comfortably support an extended family include separate living spaces, such as a mother-in-law suite, additional bathrooms and larger great rooms.“[38] It is possible that homeowners see adult children living with them as a temporary situation, while those adult children save money or look for job opportunities. Aging parents may seem to be a  longer term situation that requires a larger space and, in some instances, a more comfortable environment for aging relatives.

The topic of multi-generational housing is not as simple as having three generations who want to live under the same roof; nor is this is a new and unique aspiration. To some, this is not even a comprehensive definition. This is a housing situation that often transforms due to economic constraints and out of compassion for family. Aging parents may move into a home with their childrens’ families to be cared for and to spend time with them. Young adults may move back home -- or perhaps never leave -- due to high debt loads and low incomes. While young adults recognize the benefits of homeownership, some may have trouble reaching that goal quickly.

For home builders there is increased value placed on separate living spaces and dual master suites or in-law suites. For REALTORS^® working with clients, helping buyers to see how a space can be transformed to accommodate growing families in one location can be helpful. For researchers and economists, it is important to look not only at the economic influences that lead households to forming multi-generational homes, but also to the future impact of Baby Boomers who may be financially pressured with both aging parents and young adult children. It will be important in coming years to see if Boomers are able to retire and move to retirement destinations or if they will stay put under one roof in non-traditional retirement settings to keep family in place. Multi-generational housing is a multi-faceted issue, and will continue to be an important one as long as these economic conditions persist.

[2] National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013.

[3] Harrell, Rodney, Enid Kassner, and Carlos Figueriredo, Multigenerational Households Are Increasing, AARP Public Policy Institute, April 2011. http://assets.aarp.org/rgcenter/ppi/econ-sec/fs221-housing.pdf

[4] Ibid.

[5] Generations United, Family Matters: Multigenerational Families in a Volatile Economy, 2011.  http://www.gu.org/LinkClick.aspx?fileticket=QWOTaluHxPk%3d&tabid=157&mid=606

[6] Ibid.

[7] Ibid.

[8] Fry, Richard, and Jeffery S. Passel, In Post Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living, Pew Research, July 2014. http://www.pewsocialtrends.org/2014/07/17/in-post-recession-era-young-adults-drive-continuing-rise-in-multi-generational-living/

[9] Ibid.

[10] Vespa, Jonathan, Jamie M. Lewis, and Rose M. Krieder, America’s Families and Living Arrangements: 2012, U.S. Census Bureau, August 2013. http://www.census.gov/prod/2013pubs/p20-570.pdf

[11]National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013.

[12] National Association of REALTORS^®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf

[13] National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013.

[14] Fannie Mae, National Housing Survey, What Younger Renters Want and the Financial Constraints They See, May 2014. http://fanniemae.com/resources/file/research/housingsurvey/pdf/nhsmay2014presentation.pdf

[15] Ibid.

[16] Thompson,Derek, and Jordon Weissmann, The Cheapest Generation, Why Millennials Aren’t Buying Cars or Houses, and What it Means for the Economy, The Atlantic, August 22, 2012.  http://www.theatlantic.com/magazine/archive/2012/09/the-cheapest-generat...

[17] National Association of REALTORS^®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf

[18] National Association of REALTORS^®, Profile of Home Buyers and Sellers, Historical data 1981-2013.

[19] U.S. Bureau of Census, From Living Arrangements to Labor Force Participation, New Analysis Looks at State of the Nation's 65-and-Older Population, June 2014. http://www.census.gov/newsroom/releases/archives/aging_population/cb14-124.html

[20] U.S. Bureau of Census, Table P10-Median Income. https://www.census.gov/hhes/www/income/data/historical/people/

[21] Ibid.

[22] Federal Reserve Bank of New York, Student Loan Debt by Age Group, March 2013. http://www.newyorkfed.org/studentloandebt/

[23] Federal Reserve Bank of New York, Household Debt and Credit Report, Second Quarter 2014. http://www.ny.frb.org/householdcredit/2014-q2/data/pdf/HHDC_2014Q2.pdf

[24] National Association of REALTORS^®, 2013 Profile of Home Buyers and Sellers, November 2013. National Association of REALTORS^®, 2003 Profile of Home Buyers and Sellers, 2003.

[25] National Association of REALTORS^®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf

[26] Ibid.

[27] Ibid .

[28] Ibid.

[29] Ibid.

[30] Ibid.

[31] Ibid.

[32] National Association of REALTORS^®, 2004 Profile of Buyers’ Home Feature Preferences, 2004.

[33] National Association of REALTORS^®, 2013 Profile of Buyers’ Home Feature Preferences, 2013.

[34] National Association of REALTORS^®, 2013 Profile of Buyers’ Home Feature Preferences, 2013. National Association of REALTORS^®, 2007 Profile of Buyers’ Home Feature Preferences, 2007.

[35] PulteGroup, Multi-generational households to double in the future; families making plans for new space, PulteGroup Survey: Mom and Dad Anticipate Future Roommates, October 2012. http://www.pultegroupinc.com/files/doc_news/2012/Releaseaafa0f19-9717-4e5e-b688-fe90d91c27f2_1746385.pdf

[36] Ibid.

[37] Ibid.

[38] Ibid.