Big Shifts Ahead: Huge Demographic Changes That Affect Real Estate Investing

Every once in a while I read a book that’s just so interesting and relevant that I can’t stop talking about it. My wife gets an earful, and then I figure out a way to bring it up in random conversations.  Big Shifts Ahead: Demographic Clarity For Business by John Burns & Chris Porter is one of those books. And I’m excited to give YOU an earful with this book summary and a few of my favorite big ideas.

The book is all about big societal and demographic shifts occurring in the United States between 2015 and 2025.  In fact, the authors state in the introduction that we’re experiencing the biggest demographic shifts since the baby boom in the 1940s and 1950s.

And like that earlier baby boom, these current changes will send waves through our economy and society for decades to come. So, whatever your profession or area of interest, you need to learn about them and internalize them if you want to stay a step ahead. But I think some of the most interesting “ahas” affect real estate investing in particular. So, I’ll emphasis those.

The big ideas I’ll cover in the rest of the book summary include:

1. A New Way to Think About Generations
2. Surban™ – It’s Not Urban or Suburban
3. Mass Migration to the South
4. Renting a Home – Is it the New Normal?

I’ll unpack and briefly explain each idea. Then at the end, I’ll explain how I think you can benefit from these trends as a real estate investor.

If you like this summary, I think you’ll benefit immensely from buying the book. It includes numerous charts, graphics, and more in-depth explanations. And if you prefer listening to podcasts, you can download this interview on the Norris Group Radio Show, which is where I first heard about the book.

Now on to my favorite big ideas from the book!

A New Way to Think of Generations

You know all the big generation groups in the United States, right?

• The Baby Boomers of the 1940’s and 1950’s were a result of higher birthrates in the decades after World War II.  They’re also known for making a lot of money and loosening the social norms of previous generations.
• Generation X is sandwiched between the Boomers and Millennials. As someone born in December 1979, I barely fit into this “MTV generation”.  We felt the impact of the huge spike in the divorce rates of our parents, and we watched TV and played video games after school while parents worked.
• The Millennial Generation is another huge group that resulted from a surge in birth rates during the 1980s and 1990s. These “echo boomers” are known for the sharing economy and the use of digital media almost from the time they left the cradle.

These generations aren’t exact entities, of course, but they have been useful for big picture trend spotting and discussions. But in Big Shifts Ahead, the authors decided to change the generational conversation completely. Instead of grouping people by birth rate trends, the authors simply categorized people by decades.

Grouping Generations By Decade

Instead of huge generations spanning 20-25 years, people in these decade-long generations are in the same life stage. This means they share much more in common.  And these smaller cohorts make trend spotting more obvious and relevant, as you’ll learn from the other ideas in the article.

But for now, here are the new generation categories used in the book. I’ve also included the societal shifts the authors say these groups are most known for:

• 1930s – Savers: Warren Buffett and others in this generation became natural savers. They were shaped by forced frugality in childhood during the Great Depression and a subsequent boom economy in their working years. Savers also started the surge in divorces, and they led the move from cities to suburbs.
• 1940s – Achievers: This generation, which includes Hilary Clinton and Arnold Schwarzenegger, was driven to achieve. The advent and use of the birth control bill made dual incomes and participation by women in the workforce a new reality. Now, even at 65-69 years old almost 20% of this group continues to work.
• 1950s – Innovators: The generation of Steve Jobs & Oprah Winfrey started companies at rates not seen before or since. Their inventions boosted productivity and longevity of life. They also used debt (mortgages, car loans, credit cards) to expand their possessions at unprecedented levels.
• 1960s – Equalers: The generation of President of Obama was characterized by both sexes pushing for more equal opportunities. The women of this generation were the first to benefit from Title IX, which prohibited discrimination on the basis of sex in any federally funded education program or activity.  And many in this generation began to benefit from the Civil Rights Act of 1964, which outlawed discrimination based on race, color, religion, sex or national origin.
• 1970s – Balancers: The generation of Leonardo DiCaprio and Tim Ferriss (author of The 4 Hour Workweek) balanced the workaholic and divorce trends of their parents. They have tended to divorce less, stay at home with kids more, and have children later in life.  This generation also experienced the traumatic events of September 11, 2001 earlier in their adult lives, and this seemed to make an impact on their choices of work-life balance.
• 1980s – Sharers: Mark Zuckerberg and Beyoncé headline the Sharer Generation, which invented the sharing economy and live in urban locations in higher numbers than prior generations. Much of their sharing economy came from necessity after being hit with historic levels of student debt and the Great Recession early in their adult lives.
• 1990s – Connecters: The generation of Justin Bieber and Selena Gomez are still coming into their own and many shifts aren’t yet known. But we do know they grew up with more internet and less privacy than ever before. And they are highly educated, underemployed, and weary of credit.
• 2000s – Globals: This generation is growing up with more multicultural friends, and as a result they value diversity. Because technology is such a big part of their education and their lives, it will likely lead to other big shifts. Some day they will also bear the burden of society’s underfunded retirement obligations.

Even before I got to the other insights in the book, I found this reframing of generations to be extremely helpful. As you’ll see throughout the other ideas, each generation impacts the broader trends of society in different ways.

The next idea is a change to the types of places people choose to live.

Surban™ – It’s Not Urban or Suburban

The 1980s-born Sharer and 1990s-born Connector generations led a boom of urban (i.e. big-city) living in 2000 to 2015. These 20-somethings loved the urban restaurants, easy public transportation, and abundance of things to do. This is actually not unusual for 20-somethings, but these echo-boomers were a particularly large generation. So, they impacted the overall trends.

These generations also got smacked by the Great Recession and high levels of student debt.  And those economic realities often delayed them starting households of their own. For this reason, urban living continued to make sense for a longer period of time.

But, according to author John Burns, the economy is recovering and these younger generations are forming families. And as a result, they are leading a boom back into the suburbs outside the big cities.

This move is happening as the younger generations find the expensive housing costs, low-rated public schools, and higher crime rates of big cities less appealing. Yet, they still don’t like the traditional idea of suburban living with big yards and long commutes.

So, a new trend in lifestyle has emerged. The authors of Big Shifts Ahead Ahead call it surban™. They trademarked the term but said others are free to use it.

What is Surban™ Living?

Surban™ is quasi-urban living. The location is suburban outside the core big cities. And the highly-rated public schools and more affordable housing costs are typical suburban.

But suburban cities and towns around the country have revitalized their downtowns and commercial districts. And the renewed areas closely mimic urban living.

Homes or apartments have small yards. Residential areas are within walking distance to parks, restaurants, and boutique retail districts. And when possible, local governments have improved public transit, sidewalks, and multi-use bike paths.

All of this makes an appealing combination to the 20 and 30-something Sharer and Connector generations. But surban™ living is also appealing to another HUGE group – the empty-nesters in their 50s and 60s.

Retirees Also Love Surban™ Living

Part of the traditional baby boomers, the 1950s Innovators and 1960s Equalers are a huge demographic group. As they seek to simplify their lifestyle as they age, they also want to remain plugged in to vibrant communities and work options.

So for retirees and empty nesters, these surban™ cores also make for an ideal combination. They have surburban housing affordability, safety, and health care options. And they have the urban vibrancy, walkability, and connection.

Here is how the authors in Big Shifts Ahead sum up house hold growth in different parts of the US:

“Putting it all together, we expect the suburbs, including surban™ areas, to capture 79% of household growth over the next 10 years and urban growth to capture 15%. Rural growth will suffer, capturing only 6% of growth. Surban™ areas will continue to emerge throughout the US, appealing to the surge in nonfamily households, as well as the shift to avoid commuting and enjoy nearby entertainment.

But moves to urban and surban™ areas aren’t the only story. People are also migrating to the southern parts of the United States in droves.

Mass Migration to Southern US Regions

“Growth will continue to tilt heavily south, toward the affordable, sunshine states of the Sunbelt. Florida, Texas, the Southeast, and the Southwest grew from just 32% of households in 1970 to 42% of all households today. We forecast that 62% of household growth will occur in these four regions over the next decade.”
– John Burns, Big Shifts Ahead: Demographic Clarity For Business 

The authors of Big Shifts Ahead actually projected that all regions in the US would continue to grow.  Because of immigration, life expectancy trends, and births, no region will lose net population. But the southern regions, including the southwest, Texas, southeast, and Florida will grow much more quickly.

According to the authors, there are typically four major influences on demographic changes:

1. Government
2. Economy
3. Technology
4. Societal Shifts

In the case of the growth in the southern regions, the trend starts with government policies and jobs.

Pro-Growth Government Policies Attract Jobs

Many of the states in these regions tend to have pro-growth policies like lower income taxes, fewer regulations, and aggressive business recruitment. Many states also have laws that prevent the formation of labor unions.

As a result, manufacturing and other businesses have moved to these regions in large numbers. For example, according to this NBC News article, the southeastern US in particular has seen major business openings like:

• Boeing builds 787 Dreamliners outside of Charleston, SC
• General Electric builds water heaters and refrigerators in Louisville, Kentucky
• Starbucks roasts coffee outside Matthews, SC

And these aren’t isolated occurrences. My area in the Upstate of South Carolina is home to a major BMW and Michelin factory. Recently Toyota-Mazda announced a $1.6 billion plant opening in Alabama that will employ 4,000 people. And not too long ago, Toyota And Nissan separately moved core operations from California to Texas and Tennessee.

Affordability Also Moves Population Growth Southward

While jobs are a primary driver, people are also moving south because of affordability. Rent and housing prices tend to be expensive in regions like California, the northeast, and midwestern big cities. But housing is more affordable in the southern regions.

With wages that have stagnated on average, young job seekers find not only more work but also more affordable places to live by moving southward. And retirees on fixed incomes also make the move to allow their money to go further.

All of this together has lead to a population boom in the southeast, Florida, Texas, and southwest regions. And the author’s of Big Shifts Ahead expect the trend to continue for at least the next 10 years.

But demographic and population shifts aren’t the only big changes I learned about in the book. The choice of whether to rent or buy a home has changed as well.

Renting a Home – Is it the New Normal?

“Homeownership should reach 60.8% in 2025 – the lowest since the 1950s.”
– John Burns, Big Shifts Ahead: Demographic Clarity For Business 

You may have noticed that younger generations shun home ownership and choose renting more than generations of the past. But the authors dedicated a whole chapter of the book to explain this emerging trend.

The Great Recession and foreclosure crisis of 2007 – 2009 caused home ownership rates to plunge. 1.9 million fewer households owned a home in 2015 compared to 2006. But instead of being a temporary change, the home ownership rate has continued to stay low even as the economy recovered and the population increased.

Why has this trend continued? The authors cite many different reasons related to younger generations:

• The 1970s Balancers lost home equity and wealth during the Great Recession and had a tough time recovering.
• Nearly 20% of 1980s Sharers live below the poverty line, the highest % of any generation since the young adults of the 1930s.
• Student debt prevents many young adults from saving enough to buy a home.
• More younger generations are living in urban areas with higher housing costs (thus having to rent).
• People are marrying and having children later, delaying home buying.
• Renting has become more socially acceptable in the sharing economy.
• Young adults appetite for debt is lower than previous generations after living through the Great Recession.

In addition to these economic and social influences, government policy has also made an impact:

• The Dodd-Frank Act of 2010 made financing a home more difficult and expensive.
• After getting burned in the 2007 – 2009 housing crisis, many politicians are debating the large role of the government in mortgage markets.
• Tax incentives, like the interest deduction, are less relevant as the standard deduction has increased.

So, three of the big demographic influences (economy, government, and social) continue to play a role in the drop of home ownership rate.  And as older generations with high home ownership rates pass away, the rate could continue to drop.

The bottom-line is that it’s a good time to be a landlord who provides housing to this generation of renters! But these trends may also impact real estate investors in other ways. Here are my final thoughts.

The Impact of Current Demographic Trends on Real Estate Investors

You may ask “how does all of this affect us as real estate investors.” On the surface, it may appear that you should concentrate your investing efforts in the southernmost states in surban™ areas. Then you should sell or rent products to younger generations with families or retirees downsizing.  I would say this strategy makes a lot of sense, and it actually fits my own strategy in the thriving Upstate of South Carolina.

But I would also be careful not to change your location or strategy too quickly if you happen not to fit some of these trends. The authors in the book were quick to point out that money is made when demand AND supply create opportunities. And many of the trends in this article relate only to demand.

Remember that builders are likely to read these same trends and concentrate their resources in the high-growth areas. New construction gluts often creates oversupply, as it did in many areas by 2007. The bottom line is that you can find supply and demand imbalances anywhere on a micro-level. Finding these imbalances is a big part of my guide to choosing an investing market.

So, don’t be worried if you invest in the northeast, midwest, or west coast. These areas are still projected to increase in population – just at slower levels.

And as a small, nimble investor in the southern states or any hot area, you can often pick off smaller opportunities that the big fish (national builders and investment companies) overlook. Just focus on buying properties with good numbers in quality suburban or urban locations.  And continually build your fundamentals for finding good deals. The results will take care of themselves.

Conclusion

This excellent book has certainly influenced my thinking. I feel better that investing in a southern state in suburban locations for the long-term has good fundamentals. I already personally liked surban™ style locations (it must be the almost-1980s-Sharer in me!). But I now place equal value on them as an investor.

And I’m going to continue to be cautious about properties and markets in more rural locations. Perhaps more clearly than anything, the statistics showed that most people want either urban or suburban locations. So, I plan to continue putting my money where people want to live.

And I only scratched the surface of the overall trends in the book. Other major trends include an influx of affluent immigrants, ever-increasing economic influence of women, and a massive number of retirees. So, check out the book to learn more about the changes underway.

What trends stood out the most to you? How will they affect your future investing strategy (if at all)? Have you noticed any other trends that could be positive or negative for real estate investors?

Please share your thoughts in the comments below. Thanks!