Posted by: Josh Lehner | January 10, 2014

Food for Thought: Housing Starts

Just some Friday food for thought on the housing outlook. A new report out of the Federal Reserve Bank of Kansas City (PDF) takes an interesting look at housing starts based on demographic shifts. Economist and author of the report, Jordan Rappaport, writes that “the longer term outlook is especially positive for multifamily construction, reflecting the aging of the baby boomers and an associated shift in demand from single-family to multifamily housing.” He does detailed projections of the population, household formation, and occupied housing units to arrive at his outlook and it’s pretty interesting, given where a lot of the major macroeconomic forecasters are at. The graphs below show the KC Fed papers three scenarios — baseline, optimistic and pessimistic — along with IHS Economics’ (formerly Global Insight) baseline for comparison purposes.

The first thing I noticed was the strength of the KC Fed projections, which are generally much stronger than the IHS outlook, or a similar national consensus forecast. Second, is the composition of the outlook, with single family more or less returning to levels seen during the 1990s but multifamily nearly doubling anything we have seen in recent history. In general, I think most economists and housing experts are on board with stronger multifamily moving forward (it will be a larger share of overall construction) but these new projections are just really strong. What was interesting to me is that Mr. Rappaport expects a lot of this shift to be demographic driven by the Baby Boomers. It is not just the Millenials who may prefer to live in a higher density area, but also the empty nest Boomers switching from single family to multifamily.


In conclusion, Mr Rappaport has the following to say, based on his projections:

  •  While the housing rebound will continue in the short-term, demographics will drive the intermediate and longer run
  • Slowing population growth will put significant downward pressure on both types of construction
  • But aging will put more downward pressure on single-family and upward pressure on multifamily
  • Shift into multifamily may cause geographic shift from suburbs to city living
  • For cities, this offers possibility of revitalization and shoring up public finances
  • However, cities will need to make sure to offer urban amenities
  • Suburbs seeking to retain households may need to re-create a range of these urban amenities
  • This projected shift will likely have many, large long-lasting effects on US economy
  • It will put downward pressure on single-family prices relative to multifamily
  • It will shift consumer demand away from goods and services that complement large indoor space and a backyard toward goods and services more oriented toward living in an apartment

Anyway, just some more food for thought.


  1. As a professional planner, I have been hearing this for twenty years – aging Baby Boomers and changing consumer preferences will lead to shifts in housing demand in favor of smaller multi-family units in urban areas. In reality I have not seen much evidence of that shift – some niche markets to be sure, but not the seismic shift that keeps being predicted. Most of the Boomers I know are aging in place, and I know a lot of Millenial families living in single-family suburban homes.

    In my opinion, the current boom in multi-family development is being driven primarily by “dumb money.” During the housing crisis, rental housing in general and student housing in particular was seen as one of the few good investments, and institutional money poured in. Here in Eugene, the result is proposals for student-oriented rental developments that seem to exceed demand, and in locations that appear close to campus on a map, but that are isolated by geography and the street network. But someone in Chicago thinks it’s a great location!

    • Thanks David. Good points and some feedback I’ve received is even as some Boomers are moving to multifamily, they’re preferring to stay in the same area to maintain contacts and friends. So it might not be so much about moving into the central city, but more multifamily in the suburbs. Also, in the data I see a lot of multifamily in Corvallis, Eugene plus Portland which speaks to your point, but not much in other areas in Oregon.

  2. Your timing is absolutely perfect! Thanks ever so much.

    Sent from my iPhone

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