Note: This article was originally published by the Central Penn Business Journal. Click here to read the original version.
Earlier this summer the Tri-County Regional Planning Commission (representing Cumberland, Dauphin and Perry counties) met to discuss current and future socio-economic trends that will influence land-use decisions and related impacts.
The data and statistics shared provided insight into some powerful trends that are emerging in the local real estate market. Based upon the growing population of both Baby Boomers and Millennials that will continue to make up the majority of our population in the Harrisburg Metropolitan Statistical Area (MSA) well into the future, these generations are going to have a profound impact on our economy.
While you might think the demographics of these generations would both want a large home in the suburbs, you would be mistaken. Rather, for various reasons, both Baby Boomers and Millennials are anticipated to drive the demand for rental units. Let’s now take a closer look at what exactly is causing this trend and the implications it will have on local economic growth.
The Cause: What’s fueling this trend?
According to the information shared by the Tri-County Regional Planning Commission, this year, Millennials (age 15-34) will make up one-third of all adults in the United States and will finally outnumber Baby Boomers. While the ultimate goal for these Millennials, especially ones who have started a family, is to move into the suburbs, the majority of this generation doesn’t yet have the savings they need for a down payment on a home, thus the necessity of renting. Additionally, more than half of millennials are likely to move in the next five years, making renting housing even more of a convenient and desirable option.
Now let’s take a look at why Baby Boomers are also fueling the demand for rental units. Nationally, one in five people are expected to be over the age 65 by 2030. Older Empty Nesters (age 65-74) are the fastest growing segment of the population in Harrisburg MSA. While this reflects a growing aging population, Baby Boomers are not yet ready to slow down. They are mobile, social and want to remain as active and independent as they can. Rather than being strapped down by caring for a home that is too large for their empty nest, Baby Boomers are moving into luxury rental units that give them ultimate flexibility, freedom and a close-knit community.
The Effect: What does this means for economic growth?
Baby Boomers are currently our most affluent generation and will be responsible for the largest transfer of wealth over the next 30 years. With that said, Baby Boomers will actually hurt economic growth by not spending their money on things like housing, insurance, appliances and apparel. Rather, they prefer to spend their income on entertainment, travel and social experiences. To further illustrate this point, in Harrisburg MSA, the average household expenditures by 2015 show people spending as much on entertainment as they do housing.
Such spending habits again strengthen the demand for rental units as they require less money and maintenance than owning a large, single-family home. As a result, we can expect rental prices to remain competitive, and while they may rise slightly in response to demand, they will remain reasonable to both Baby Boomers and Millennials relative to income and in comparison to the cost of owning a home.
As for rental vacancy rates, these are expected to remain low through 2019. This is great news for owners of rental properties and developers who are looking to expand into this area. It’s a safe bet that a growing number of renters will be in the market for housing that will allow them to live life well, while still conserving money for whatever their priorities may be.
How Central PA can best harness this economic growth
Central Pennsylvania would be smart to take note of this important trend. If you identify with either Baby Boomers or Millennials, know that renting may be a viable option for you at this point in your life. With new projects on the rise, you are likely to find some very nice accommodations at competitive prices that are far less than the cost of a mortgage. This will allow you to channel your wealth into saving for a future home of your dreams, or spending it on life experiences you’ve been waiting until retirement to enjoy.
For businesses, real estate brokers and developers, this is also a powerful trend that can impact your industry. Get to know the Baby Boomers and Millennials – their habits, preferences, indulgences and priorities. Appealing to these growing generations will ensure your business will also continue to grow well into the future.