The future of the global housing market will be shaped predominantly by two seemingly disparate groups: members of Generation Z and their predecessors Generation Y (also known as millennials), and Baby Boomers who’ve recently become Empty Nesters. The emergence of these two new groups will dictate the housing stock on offer in the coming years. As Generations Y and Z are coming of age and beginning their professional life, Baby Boomers are coming to the end of theirs. With both embarking on a new life stage, they’ll enter the property market – Generations Y and Z for the first time, Baby Boomers relinquishing their family homes and looking for something new – and they’re both showing a preference for housing stock not currently available.
The new power generations
It’s generally accepted that Generation Y includes anyone born between the early 1980s and the end of the last millennium. Alongside Generation Z (those born after the dawn of the new millennium) Generation Y is on the verge of becoming a major influence in the global property market. Indeed, by 2025, Generation Y will account for half the world population – and 75% of its workforce. In the EU alone, in 2018, there were 99 million members of Generation Y and a further 82 million members of Generation Z. As the housing stock of the future will be created for, and need to be desirable to, Generations Y and Z, it will have to reflect their needs and aspirations.
Generation Y wait?
Some key characteristics of Generation Y are directly influencing the housing stock they prefer. For example, they remain single for longer than previous generations, they’re happy to move jobs regularly, they prefer to live in the city, and they’re more likely to rent. But it’s not only personal preferences shaping the emergent housing market. Financial aftershocks of the Global Financial Crisis (GFC) are still being felt in the form of curtailed mortgage lending that has left Generations Y and Z encountering historically high loan-to-value ratios and loan-to-income ratios. As a result, saving for a deposit to buy a first home will take Generations Y and Z significantly longer than previous generations, and will, in some cases, prove impossible*. In the UK, the average national wage is just 14% of the average national house price. But regional markets can vary greatly. In the US, while the national average is 29%, in San Francisco, New York and Los Angeles, that drops sharply to around 10%. Consequently, flexible rental products seem the obvious solution – the challenge is to supply it in the form, volume and locations required.
An age-old problem
While Generations Y and Z are entering the property market at scale, so too are their parents. People are living longer, remaining healthy and active for longer, and they want to continue to live independently for longer too. Globally, the number of over-65s will more than double from 612 million in 2015 to 1.5 billion in 2050.
In Asia, this demographic shift is already being felt. In Japan, more than a quarter of the population is currently over 65, and by 2030 that figure will have grown to 30%. China’s population is rapidly ageing too, thanks in part to its one-child policy – its current population of 160 million over-65s will nearly double to 300 million by 2035. And European cities are fast catching up. The populations of Italy, Spain and Germany are ageing fast – within the next few decades, they will also reach the 30% of over-65s threshold – and will have an extra 13 million over-65s by 2035.
This will inevitably increase demand for senior housing, but not the senior housing we’re currently used to. Broadly speaking, the housing stock they’re interested in is similar to their younger counterparts: flexible properties in vibrant locations offering new experiences – and, increasingly, they want to be close to their grown-up children – and new residential models are emerging to cater for the burgeoning demand.
The shape of things to come
The Chinese government is already actively promoting the rental sector, selling plots for rental properties much cheaper than if they were to be used for the sales market, and the market is responding to the new demand by developing new and hybrid stock.
A new rental housing model aimed at seniors who want to live independently is currently growing in popularity in France. The properties aren’t conventional care homes. Typically, the apartments have shared communal space that includes leisure facilities such as a swimming pool, gym, hair salon, as well as an activity and culture programme. Subtly adapted to their occupants – fewer hard edges, integrated monitoring technology – there are currently 45,000 units across 540 developments in France.
For those at the opposite end of their professional life, co-living is also becoming an increasingly attractive option. They are mostly large-scale properties designed to appeal to a diversified tenant base that includes students, graduates and young professionals. They typically offer fully furnished micro-apartments, all-inclusive bills, extensive amenities and community events. Similarly, to the new stock of senior housing, they have co-living space that includes facilities such as a bar, restaurant, cinema room, gym and library.
Another variant of co-living is also emerging as a viable option. Hotel-hybrids are hotel-style properties that offer the option of long-term lets. Often formerly hotels, they offer personal space and communal areas where residents can work, socialise and dine together.
While single-family home rental is well-established in the US – 8 million new units of rental housing stock were created between 2005 and 2015, during which time the single-family home’s share of the rental market grew from 34% to 40% – it is yet to take off in a similar way in the UK. However, there is evidence that it has the potential to succeed as, while only 10% of build to rent properties in the UK are houses, 60% of the households in the private rental market occupy houses.
While these housing models are currently emerging as possible, even probable, solutions to evolving needs, their success will be determined by whether or not they offer attractive investment opportunities. If they can become financially viable, they may well form the housing stock of the future.
This feature has been adapted from the Savills Global Living Spotlight, which discusses the demand for property from different generations in more detail
* This isn’t the same the world over. In China, 70% of Generation Y are homeowners, largely thanks to the government’s one-child policy, where millennials are known as ‘seven pocket kings’ in reference to the fact that they can count on money not only from their own pockets but also those of two parents and four grandparents.