Guest post by Basil Alomary
An influx of births post-World War II, in combination with longer life expectancies and declining fertility rates, is creating a massive age gap in the United States. Nearly 10,000 baby boomers turn 65 every single day and by 2030, and, by 2030, 20% of the U.S. population will be over 65. Without some meaningful shift in productivity, the implications on the U.S. economy will be substantial:
- Declining labor-force participation
- Lower economic growth
- Decrease in savings and investment
Aside from the conspicuous macroeconomic effects of an aging population, there are some less obvious … [+]
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As Morgan Stanley’s Ruchir Sharma puts it, “the primary threat most countries now face, in fact, is not too many people but too few young workers.”
…there will continue to be increased demand for more modern retirement communities and senior co-living options, located in or near major cities.
It’s important to contextualize these evolving demographic dynamics within the current inequity of wealth in America across age groups. Neil Howe highlights this significant inequity in The Graying of Wealth, “never before have the 75+ had the highest median household net worth of any age bracket. Today, the typical 80-year-old household has twice the net worth of the typical 50-year-old household. As recently as 1995, they were about equal.”
In 2017, about 16 percent of the American population was 65 years old or over; a figure which is … [+]
Credit: Erin Duffin. “U.S. – seniors as a percentage of the population 1950-2050.” October 17, 2019. Web. April 30, 2020. Statista
Aside from the conspicuous macroeconomic effects of an aging population, there are some less obvious impacts on real estate—and intriguing opportunities for technology and entrepreneurship. Specifically, we can expect this aging population to drive two high-level trends:
Specifically, we can expect this aging population to drive increased urbanization, particularly in … [+]
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- Increased urbanization, particularly in secondary cities
- Increased investment in real estate, directly and through investment managers
The elderly will move into secondary cities, where there isn’t enough housing stock. Additionally, this group will seek alternative living arrangements compared to past generations as retirement homes no longer meet their needs. Lastly, because of their high wealth, but low, and often fixed, income, there will simultaneously be a meaningful reduction in public investment and a need for alternative financial instruments to serve this demographic.
Increased urbanization & the growth of secondary cities
The world is rapidly urbanizing—a trend that we’ve seen in the United States more aggressively than many other parts of the world. Over the last 150 years, the US has gone from 25% of the population living in an urban area to over 80%. That said, young Americans aren’t the only ones flocking to cities. KKR’s Paula Campbell Roberts believes that “the migration of older populations to the city to meet mobility, access and community needs should persist, particularly as longevity continues to improve.”
Fig. 1 Shows living preferences if money is not an obstacle when over 80 years old in North America … [+]
Credit: Jennifer Rudden. “Share of renter households in the U.S. 2007-2035, by age.” Feb 19, 2019. Web. April 30, 2020. Statista
The implication for real estate investments is clear: there will continue to be increased demand for more modern retirement communities and senior co-living options, located in or near major cities. Despite the wealth of the elderly relative to younger populations, that wealth is not equally distributed, and there will be opportunities for the fintech industry to provide products to help create a more affordable end of life experience in urban areas.
…there will be opportunities for the fintech industry to provide products to help create a more affordable end of life experience in urban areas.
Furthermore, urbanization throughout the country isn’t necessarily happening in major cities, but in “secondary cities.” For reasons of affordability and lifestyle, mid-sized cities are growing rapidly at the expense of cities like New York City. In fact, in 2018, New York had its first year with a declining population in over a decade.
Fig. 2 This statistic shows the distribution of renter households in the U.S. in 2007 and 2017, with … [+]
Credit: Jennifer Rudden. “Share of renter households in the U.S. 2007-2035, by age.” Feb 19, 2019. Web. April 30, 2020. Statista
That said, these areas don’t have enough middle-density housing stock to support rapid growth. Harvard’s Joint Center for Housing Studies notes, for example, that “small homes under 1,800 square feet represented just 22 percent of single-family completions, down from 32 percent on average in 1999–2011.”
One area for possible innovation lies in construction bidding platforms. There is room for a marketplace focused on democratizing access to construction projects.
This situation is going to lead to a housing shortage that needs to be met with new developments and ultimately by new developers. One area for possible innovation lies in construction bidding platforms. There is room for a marketplace focused on democratizing access to construction projects. The current solutions in the market have a limited footprint, very non-technical teams and serve more as aggregators than proper two-sided marketplaces. Websites, as they exist today, are more Craigslist than Airbnb. Companies like iSqFt and BidNet list possible bids and claim to manage the bidding process, but there is no real communication on the platform, reputation management, complex contract management, etc.
Increased investment in real estate
This new generation of retirees doesn’t only outnumber previous generations but is also composed of people who will, on balance, live much longer lives. This elongated retirement will have a downstream impact on the investment strategies of this wealthy segment. There will be greater pressure to make investments that yield steady cash flows whilst providing a greater level of financial security and real estate investments are a perfect fit.
There will be greater pressure to make investments that yield steady cash flows whilst providing a greater level of financial security and real estate investments are a perfect fit.
Aside from strategies undertaken by pension funds, we can expect greater direct investments in real … [+]
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Aside from strategies undertaken by pension funds, we can expect greater direct investments in real estate from wealthy seniors. This forecast is further buoyed by platforms with a focus on democratizing real estate investments. Cadre, for example, allows accredited investors to make direct investments in commercial real estate and even positions their real estate investment products as driving “steady cash flow” and “preserving capital.”
Expect more platforms like Cadre to emerge now that seniors are increasingly more tech-savvy and independent relative to their predecessors.
Going Forward
There are many more ways in which the country’s evolving demographics will change our lives. Everything from healthcare to transportation will have to be rethought to accommodate the 70 million Americans claiming senior status. Within these changes, sizable venture investment opportunities in real estate technology and the financial services supporting real estate will continue to emerge.
CREDIT: JULIA MALTBY
Basil Alomary is a first-year MBA student and VC Fellow at Columbia Business School, as well as an MBA Associate at Primary Venture Partners. His background is in early-stage SaaS, both as an operator and investor.