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BY ROBERT DIETZ, PH.D. CHIEF ECONOMIST NATIONAL ASSOCIATION OF HOME BUILDERS @DIETZ_ECON Demographics and the Homebuilding Outlook Follow more market trends and industry forecasts at nahb.org/news-and-economics/housing-economics H istorically low interest rates, a preference shift toward larger homes in the suburbs, and an increase in the use of homes for work and study have supported demand for the construction of new single- family homes and apartments as well as remodeling projects. Demographics, however, are another important factor. There are roughly 74 million Baby Boomers and 96 million Millennials. In contrast, there are only 56 million members of Generation X. While Gen Xers are now the majority of newly-built homebuyers, Millennials are driving growing overall demand for single-family housing, new and existing. Millennials are approaching their 42nd birthdays—traditionally, the average first-time homebuyer is in their late 30s. Demographic-based demand for single-family homes is positive in the United States and should remain so over the next ten years. With ongoing limited inventory and aging housing stock, remodeling and teardown construction should also see gains. However, there are long-term demographic challenges that the residential construction sector should consider today from a policy perspective. The most pressing is a decline in the U.S. birth rate. Generation Alpha, comprised of today's newborns, is set to be the smallest cohort in the modern era. The fertility rate in 2019 declined for the fifth year in a row and was the lowest since WWII, with just 1.64 children per woman—and initial evidence indicates that 2020 saw another decline. Demographers suggest a growth rate of 2.1 is required to keep the population at current levels. The gap between 1.64 and 2.1 is currently closed by immigration, but immigration has been slowing as well. The population growth rate for the country has fallen from 0.7% in 2011 to just 0.4% in 2020. Homebuilding depends in part on population growth; thus, these declines will have impacts on home construction markets in the 2030s. Given the demographic connection to today's rising housing costs, policymakers need to address affordability and lack of supply. Doing so will not only help today's housing issues but also long-run population growth and the future of the U.S. economy. The fertility rate in 2019 declined for the fifth year in a row and was the lowest since WWII, and initial evidence indicates that 2020 saw another decline. Housing has been one bright spot during the economic crisis brought about by COVID-19, but there are challenges on the horizon. 50 master BUILDER | SPRING 2022 MEMBERSHIP VALUE