FM Commentary

FM Commentary

Housing the Nation’s Burgeoning Older Elderly Population

Doug Duncan Commentary ImageWith millions of Baby Boomers entering their golden years, attention is increasingly focused on the challenges associated with meeting the housing needs of an aging nation. These challenges include providing home modifications and supportive services that allow seniors to age in place; financing varied types of residential developments – from independent living facilities to nursing homes – that meet the full spectrum of elderly housing needs; creating affordable housing and service packages for low-income and low-net-worth seniors; and enabling older homeowners to tap accumulated home equity.

In an effort to better understand these challenges, Fannie Mae’s Economic & Strategic Research Group has published a Data Note that examines the size, disability characteristics, and housing consumption of the nation's seniors, with a particular focus on the population aged 75 and over. This “older elderly” population is of particular interest because it is projected to grow very rapidly and has disability and housing consumption patterns that differ from those of younger seniors.

Although Baby Boomers, who were born between 1946 and 1964, have yet to join the ranks of the older elderly, housing consumption of this demographic is already expanding very rapidly. A fundamental metric of housing consumption is the headship rate, which is the proportion of the population in a given age group that is a householder.1 Among all the age groups, only the older elderly have experienced rising headship rates in recent decades. Much of this increase in headship rate has been driven by expanding owner-occupancy. Within the older elderly age group, the number of owner householders per 100 people increased from 41 in 1980 to nearly 50 in 2010, representing a stark contrast to trends for young and middle-aged populations (see chart below).

Graph: Owner-occupants driving increase in headship rate for the older elderly

Rising headship rates have contributed to rapid household growth among the older elderly. In 2010, 9.2 million homeowner households had an older elderly householder, an increase of 1.2 million, or 15 percent, from 2000. This compares with a growth rate of only 9 percent in the total number of homeowners in the last decade. The number of older elderly renters also increased rapidly, expanding by 17 percent, or nearly half a million renters, between 2000 and 2010.

The already rapid pace of housing demand growth of the older elderly is expected to accelerate when the Baby Boomers begin to enter the 75-and-older age group early next decade. According to Census Bureau population projections, the older elderly population will grow at four times the rate of the overall population by the first half of next decade (see chart below). Indeed, the older elderly population is projected to grow substantially faster than the overall population for the next several decades, capturing a large share of the nation’s total population and household growth. Between 2020 and 2040, the older elderly population is projected to account for 40 percent of growth in the population aged 15 and over, up from a 15 percent share this decade. Households headed by an older elderly person are projected to account for half of the nation’s total household growth between 2020 and 2025.2

Graph: 75-and-older population is about to boom

One factor that will help to define the coming growth in housing needs among the older elderly is the incidence of disability, which rises with age and will determine the need for accessibility enhancing home modifications, service-enriched residential facilities, community-based service delivery systems, and nursing homes. The older elderly are twice as likely to have a disability as those aged 65 to 74.3

Given the higher incidence of disability among the older elderly, the entrance of Baby Boomers into this age category will swell the need for a variety of specialized housing and supportive services. Solutions will often need to combine health and social services with physical design features that promote independent living and help mitigate frailties associated with aging. Due to the desire of a large majority of adults to age in place, a significant component of the response is likely to include retrofitting much of the existing housing stock with accessibility enhancing features such as ramps, wider doorways, and bathroom grab bars.4 Responses also will need to include new residential development in a variety of forms, from traditional housing with accessible design features, to independent and assisted living facilities, to nursing homes. Paying for these solutions might entail creative combinations of public and private resources, including in some cases unlocking the accumulated home equity of the rapidly growing number of older homeowners.

Solutions to meet the housing needs of the older elderly should be informed by additional research. For example, a better understanding of how recent house price declines have affected the housing wealth of elderly homeowners will help to gauge the potential of home equity extraction.5 To aid in customizing housing and service options, additional research also should explore variations in disability rates and housing consumption patterns across detailed age groups within the older elderly population. Understanding how the housing and disability characteristics of the older elderly vary across other demographic dimensions such as race, ethnicity, and income also will help the industry to tailor solutions to meet varied needs. Research on how the life-cycle trajectories of housing consumption and disability for Baby Boomers have deviated from those of previous generations also should help to better anticipate the magnitude and characteristics of the coming surge in housing needs of the older elderly.

Doug Duncan
Chief Economist
Senior Vice President

June 15, 2012

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

1 A householder is typically the person, or one of the persons, in whose name a housing unit is owned, being bought, or rented. By definition, there is only one householder per household and therefore the number of householders equals the number of households.
2 Masnick, George S., Daniel McCue, and Eric S. Belsky. 2010. Updated 2010-2020 Household and New Home Demand Projections. Joint Center for Housing Studies of Harvard University Working Paper W10-9, September 2010. Neither the Joint Center household projections nor the Census Bureau population projections discussed earlier reflect results from the 2010 Census. However, I believe it is unlikely that projections based on the 2010 Census would substantially diminish the growth rate differential between the older elderly population and other age groups.
3 According to the Census Bureau’s 2010 American Community Survey (ACS), the disability rate is 25.4 percent for those aged 65 to 74, but rises to 50.5 percent for those aged 75 and over. In the ACS, disability status is determined based on difficulties in six areas: hearing, vision, cognitive, ambulatory, self-care, and independent living. A person aged 15 years or older is considered to have a disability if he/she has difficulty in any of these six areas.
4 A 2010 survey conducted by AARP found that nearly three-quarters of adults aged 45 years and older expressed a strong preference for remaining in their current residence as long as possible (Keenan, Teresa A. 2010. Home and Community Preferences of the 45+ Population. Washington, DC: AARP).
5 Government survey data provide some insights into the initial impact of the house price bust on seniors’ home equity. According to the Survey of Income and Program Participation, the median home equity (measured in 2010 dollars) of households with a householder aged 65 and over fell from $156,359 to $145,361 between 2005 and 2009, a drop of 7 percent. See Taylor, Paul, et al, The Rising Age Gap in Economic Well-being: The Old Prosper Relative to the Young. Pew Research Center, November 7, 2011.

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