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• The Living Arrangements of Older Households

Transcript

Tim Sablik: My guests today are John Bailey Jones and Urvi Neelakantan. John is vice president of microeconomic analysis and Urvi a senior policy economist, both in the Research department of the Richmond Fed. John and Urvi, thanks for joining me.

John Bailey Jones: Thanks so much for having us.

Urvi Neelakantan: Great to be here.

Sablik: Our topic of conversation today is aging in place and how the living arrangements of older Americans might impact the housing market.

I think it's pretty well known at this point that the U.S. population is aging. Over the past century, the share of the population comprised of adults aged 65 and older has more than tripled from nearly 5 percent in 1920 to just shy of 17 percent in 2020.

In a recent Economic Brief, you both chart how the living arrangements of older Americans have also changed over the past 50 years. Older households have become more likely to live in houses they own. You looked at this trend across a variety of dimensions. Can you give us an overview of some of the findings that stood out to you?

Jones: One of the things that stood out to me is that the houses seniors live in appear to be getting bigger, at least as measured by the number of spare bedrooms. The share of seniors living in homes with two or more spare bedrooms has more than doubled from 10 to 25 percent between 1970 and today. That's a pretty big change.

Neelakantan: I'll second that. It's striking not only that people age in their own homes — the homeownership rate has increased from two thirds to nearly 80 percent — but also that they don't appear to be downsizing. For example, a recent study by the Urban Institute found that 40 percent of individuals 75 or older have lived in the same house for at least 30 years.

Sablik: One thing that occurred to me as I was reading your Economic Brief is that this rise in homeownership among older Americans might be accompanied by a decline in other living arrangements. What did the data show there?

Neelakantan: It's been a small decline in the fraction of seniors living in institutional settings such as nursing homes and group quarters. But the most perceptible change has been the increase in homeownership rates among seniors that we just talked about. It could be that the increases in life expectancy have also led to married couples living longer. You tend to move into a nursing home or that kind of care once you've been widowed, and so the aging in place may also be reflecting longer life expectancies.

Jones: There is a distinction between, say, a nursing home and an age-restricted community. There are those gigantic communities down in Florida, right? They would actually, at any point in time, be classified as living in their own homes.

Sablik: John, how much does the rise of homeowners aging in place reflect a general decline in mobility across the United States?

Jones: There's no question that geographic mobility has fallen across all age groups. It has halved since the 1970s among both the young and the old. However, it's always been the case that older individuals have been less likely to move, and that has only been accentuated now.

Sablik: How does the increase in homeownership among older Americans affect wealth at retirement?

Neelakantan: Housing is typically the largest asset in most households' portfolios in the U.S. The increase in home ownership among older adults means that their portfolios are inevitably more sensitive to fluctuations in housing prices. On top of that, a home is a pretty illiquid asset, which means that it's not easy to sell and use the proceeds for other expenses or investments.

Jones: As Urvi said, a home is a pretty illiquid asset. There are going to be Realtors fees to moving, there is the time and the psychological cost of finding a new place to live and moving. So, the fact that so much wealth is tied up in this illiquid asset means that it's going to be harder for older households to spend their wealth while they are retired or to transfer it to their children or grandchildren. These beneficiaries may not be able to access the parents' or grandparents' housing wealth until they inherit it. There are financial products such as reverse mortgage that allow seniors to extract home equity, but these products are not heavily used.

Sablik: Does this also have any effect on racial and gender differences in lifetime wealth accumulation?

Jones: The data show that, although both Black and White seniors are more likely to own their home than in the past, the homeownership rate has, in fact, grown faster for White seniors. That's going to be widening the racial ownership gap.

Neelakantan: John and I have other work in progress — along with our colleague Grey [Gordon] and Kartik [Athreya] from the New York Fed — which looks at all the contributors to the racial wealth gap, the Black-White wealth gap in particular. We find that gaps in homeownership rates do contribute to the Black-White wealth gap at all ages. There is, of course, a lot of research on whether races have equal access to homeownership. By the time we reach retirement at older ages, the gap in homeownership rates may both be a contributor to and a consequence of the racial wealth gap. So certainly, the two gaps appear to be correlated.

Sablik: Turning to the impact on the housing market, is the increase in older homeowners aging in place having any meaningful effect on housing supply?

Jones: Inevitably, in the long term, older individuals will have to move out of their homes. But in the nearer term, the tendency of older households to stay in place will restrict housing supply, at least in certain neighborhoods.

Neelakantan: Then, what happens in the aggregate in the housing market depends on the amount of new construction and whether it can keep up with the increase in the changes in the type of demand.

Sablik: Thinking about construction, some researchers that have looked at this topic have noted that homes where older people are aging in place may require some modifications to allow those owners to safely age in place. Could that also have an effect on housing supply in terms of the allocation of scarce construction resources?

Neelakantan: Anecdotally, we've certainly noticed an upward trend in home modification. Some of this may be a consequence of the pandemic and people spending more time at home. But we've also seen housing that is exclusively marketed to those aged 55 and older. So again, what happens in the aggregate in the housing market will depend on whether new construction keeps pace with these changing trends.

Sablik: Overall, does this trend towards increased aging at home seem likely to continue, or are there factors that could push in the opposite direction in the future?

Jones: Well, I certainly don't expect it to reverse. As you mentioned, the share of seniors in the population will continue to grow and home healthcare technologies have been evolving to facilitate them. More generally, there's been a recognition that there are health benefits to seniors remaining in their own homes for as long as possible.

Sablik: Given that we expect to see a growing number of older homeowners continue to choose to age in place, are there any things that policymakers should consider to help the economy or the housing market adapt to this trend?

Jones: There have been a number of policy proposals to cover the costs seniors occur when aging in place. Presidential candidate Kamala Harris had one, for example. We have not done a cost-benefit analysis of these proposals, so we can't say whether these would constitute a good use of public funds.

Neelakantan: The services that a neighborhood needs are very different depending on the age of the households in that neighborhood. So, as the composition of neighborhoods change, local governments will want to ensure that services such as schooling and healthcare evolve to meet those changing needs.

Jones: A more general issue is the presence of impediments to new home construction, such as overly restrictive zoning rules. These impediments raise housing prices in all sorts of neighborhoods, including the ones with a high share of older households.

Sablik: John and Urvi, thanks so much for joining me today to discuss your research.