House Rich and Cash Poor

House Rich and Cash Poor

Continuing the Conversation…about low inventory, our rapidly aging population (by 2030, 1 in 3 Santa Cruzans will be 65) and how a growing number of older homeowners staying in their homes longer are unintentionally making the housing crisis worse. 

It’s amazing how little data exists about the impacts of aging on the real estate market and the housing crisis.  My recent digging points to a correlation between the last ten years of record low supply (and record high prices) and the huge swathe of aging baby boomers that began turning 65 right after the Great Recession.   

Their shift into retirement has disrupted the market and changed the traditional calculus between supply and demand and my prediction is that our now-chronic low inventory woes will continue unabated well past 2030 and long-suffering buyers will only start to see some relief when increased mortality rates for aging boomers start kicking in around 2035.

Until then, a disproportionate share of our local housing stock will be off limits, held tightly in the grip of aging seniors who’ve been the big beneficiaries of 40 years of  slow growth. They’re house rich but relatively cash poor.  They have lots of equity,  no mortgages, exceedingly low property taxes and very little incentive to sell their homes or go anywhere.

It would be hard to come up with a better get-rich scheme than the tried and true SC housing method: Come to town when you’re young. Find any means to buy a house (or two or three). Leverage all the wealth-building opportunities of homeownership. Support (or at least don’t vote against) slow growth measures that make new building harder.  Hold onto your home and let demand ratchet up home prices and rents.  So much the better when the town is nestled on a gorgeous stretch of coastline with a growing University that also happens to be right next door to Silicon Valley.  

Sound familiar?  I’m not saying any coldly-calculating community activists actually promoted slow growth policies for their own personal economic gain (not like greedy developers who wanted to pave paradise) but I also haven’t seen many NIMBY folks sell their homes for any less than what the market would bear (even if a huge part of their gain was derived from the lack of supply).

Even with slower growth, the population of Santa Cruz has grown since 1990. But despite more people and more houses being built, the real estate market has actually shrunk during that time. On average, the number of annual  home sales has declined about 35% since the early 90s while prices have appreciated 600%!  Lower supply and fewer transactions has been a boon to homeowners aging in place.