Have you ever thought about what drives demand for real estate? For the most part it’s the number of people that want the same type of real estate.
Think about it. When a lot of jobs are created in a metropolitan area, people move there, buy or rent houses, and that drives up the prices of housing in that marketplace.
One of the basic needs of society is a roof over everyone’s head. Because of this need, there is always demand for housing wherever people want to live.
This demand changes over time depending on demographic shifts in the population. I look at two types of shifts in demographics to determine what type of real estate I want to invest in and where I want to invest in those types.
The first type of shift in demand is driven primarily by age. At different points in people’s lives, they have different needs for the roof over their head.
When people leave the support of their parents (usually in age range of 18-25), they form a new household, but most often this is for a single individual. So maybe they want an apartment.
As they form a relationship with another significant person, the demand for more long-term housing is needed. Jobs can also drive location here.
As these couples start to have families, jobs can continue to drive location demands (city v city), but the need for good schools and family-friendly environments can also drive location demands (neighborhood v neighborhood). This age range can last for quite awhile (20-25 years) until those children leave their parent’s home. During these time periods in life people can choose to own or rent their housing depending on their own financial interests. But that choice does not really impact the big picture of demand for types of housing. It’s the same housing whether owned by the occupant or a landlord.
Once the children leave the house, people often move to down-size their housing.
Later in life, they will look for housing to live in during retirement years and even later than that they might need some assisted living type housing.
In order to understand when there is demand for different types of housing, I review the different sizes of the different generations so I can figure out when certain age groups will be growing or shrinking. We have all heard of the Baby Boom generation of people born between 1946-1964 and that it was a much larger generation. This led to higher demand during the different times of life as that generation moved through the different age groups I mentioned above. In a future post, I will dig deeper where the Baby Boom generation is going and all the subsequent generations that followed along with their size so we can determine where real estate demand is going.
In some future posts, I will explain how and why I’d like to take advantage of these demographic drivers.
What do you think? Do you think I’m on the right track here? Am I missing anything?
I’d love to get your thoughts on demand for different types of real estate. Feel free to comment on my blog and I’ll reply there. Or if you prefer, email me back or schedule a time for us to talk on the phone. You can pick your preferred date and time of the meeting using my web-based calendar here.
For now, be safe and take care of your family.
Mark