Recent research from Harvard University’s Joint Center for Housing Studies (JCHS) suggests the housing market will face a significant headwind over the next decade due to slowing household growth.
According to a new paper from the JCHS, annual growth in homeowner households is expected to range from 337,000 to 685,000 between 2025 and 2035. During the same period, annual growth in renter households is projected to range between 174,000 and 523,000. The low range across both groups is lower than previously forecasted. In January, the JCHS projected a total household growth rate of 859,000 per year between 2025 and 2035.
The most recent projections incorporate modest changes in homeownership rates under three different scenarios, ranging from a 0.8% increase to a 1.6% decrease. The base scenario of the projection calls for the homeownership rate to remain steady at 65.9%. The scenarios are driven by demographics and do not account for unpredictable changes in financial conditions that could have a more significant impact on homeownership rates.
The three scenarios differ according to assumptions about the extent to which today’s younger households will be able to become homeowners at rates similar to previous generations as they age. Limiting factors to homeownership rate growth include high housing costs and continued affordability challenges that would prevent younger households from becoming first-time homeowners.
The base scenario for the JCHS suggests that population aging and increased racial diversity will offset each other over the next decade and leave the overall homeownership rate unchanged at 65.9%. In this scenario, the average annual homeowner growth of 560,000 would be 18% less than the historical average since 2000. Average annual growth in renter households under the base scenario would be 50% lower than the historical average since 2000.
Under the JCHS projection calling for an 0.8% increase in the homeownership rate, the growth would be driven by the assumption that younger cohorts will experience historically average increases in homeownership rates as they age. With this assumption, the average annual homeowner growth would be in line with the historical average since 2000. However, as a result, the average growth in renter households would be 67% below the historical average since 2000 at just 174,000 new renter households per year.
If younger households—under the age of 35 in 2025—experience historically low gains in homeownership over the next decade, the JCHS projects the homeownership rate will dip by 1.6%. Yet, in this scenario renter household growth would benefit and align with the historical average annual growth since 2000.
Given current housing market conditions, categorized by high home prices and interest rates that continue to deter first-time buyers, the forecast calling for homeownership rate compression may be the most likely outcome. While the projections are subject to a wide margin of error given a number of factors that could cause positive or negative shocks, they provide a picture of how demographic change and slowing household growth could affect both the single-family and multifamily housing markets over the next decade.
