Gimme shelter: Boomers nearing retirement consider housing options

As prices soar in many real estate markets around the country, observers are eagerly waiting to see to see what will happen next. One of the subplots of the unfolding drama is the imminent retirement of the baby-boom generation. Iconoclastic in their youth, boomers have tried to redefine life's stages as they have aged. At retirement they get another chance to make an impact. Will the generation that trusted no one over age 30 gravitate toward age-restricted communities? Will they downsize, or not? It will be interesting to see where this group wants to live post-career.

Seventy-five million strong, with bank accounts fatter than almost any other generation in U.S. history, the baby boomers are getting ready to retire. A generation that has regarded itself as different from all predecessors, the boomers have sent tremors throughout society since the '60s. Will they change the face of retirement the way they rewrote popular music?

The real estate industry is watching with interest. Where will the boomers want to live as they get older? Many are building the homes they plan to retire in, but as they do so, are they really thinking ahead to aging? Or does "lifestyle" have the most influence on their real estate buying choices?

Forever lumped together as a demographic bubble, the boomers are actually a diverse group, and their retirement choices are reflecting that fact. Read one report and learn that those on the verge of retirement are fleeing the suburbs for revitalized downtown areas and high-density housing projects. Other reports say representative boomers prefer a mixed community as the site for their dream home, designed with few but spacious rooms, incorporating gourmet kitchens along with space for hobbies or grandkids.

Studies attempt to identify one prevailing trend or another, but boomers hardly adhere to any group mentality, particularly when it comes to choosing where to live. "You can't view aging boomers as a generic group," says Jay Butler, director of the Arizona Real Estate Center. "Fundamentally, they'll be looking at different things. Some will want to get away from the urban context, others will live in active adult communities because of the amenity features. Still others will want to live in the houses they already live in."

In their prime

This generation is "the dominant face of the move-up market," Butler says, and they're marketed to accordingly. The majority prefers mixed communities, but active adult communities endure as an option for those 55 and over, whether they are in pre-retirement — a phase between workaday life and full retirement — or already retired.

Research, including studies by W. P. Carey real estate professor Karl L. Guntermann, has demonstrated that there is a price premium associated with housing in age-restricted subdivisions and communities. The premiums persist over time and various market conditions, suggesting that age-restricted status "can be a valuable component of the housing bundle," according to Guntermann.

The premiums may result from the reduced uncertainty associated with living in an age-restricted project, he explained. Home equity is often the largest single component of household wealth and a desire to maintain, if not enhance, wealth may be part of the reason that age-restricted housing appeals to certain seniors.

To the extent that some households believe that other seniors share their concern about preserving home equities, they may be attracted to "adult only" or age-restricted subdivisions or communities. The assurance that not only current but also future owners will be "55 or older" reduces some of the uncertainty about future house prices and it is the reduced uncertainty that is capitalized into house prices.

"Because it is very difficult to change the deed restrictions or overlay zoning ordinances that create the age restrictions, purchasers are willing to pay a premium to live in age-restricted housing," Guntermann said. Another factor that may be even more important is the desire of some seniors to live near others who have similar interests, not only in terms of maintaining property values but also in other ways associated with their stage in the life cycle.

"Age-restricted status may act as a signal to potential purchasers about the characteristics of current owners and provide some degree of certainty about the characteristics of future owners. At least some seniors are willing to pay a premium for the assurances associated with age-restricted housing," he said.

Today these communities are among the more obvious business opportunities for those who cater to boomers.

"Pre-age 65 is the key for the retirement community market," said Tom Rex, associate director at the W. P. Carey School's Center for Business Research. This niche is generating a great deal of interest because of the sheer size of the population. "Those buying into these communities tend to retire early, at ages from the mid-50s to early 60s in Arizona. Nationally, the number of people in this age group already is rising and that number will continue to increase and remain high for years." This age group is approaching retirement in stages, Rex continued.

"Some people make a pre-retirement move — to retirement communities or otherwise," he explained. "Almost all of these moves are within a local area. Others 'retire' early, make a move, then go back to work in a new position. This group is still considered retirees."

Del Webb, which invented the age-restricted retirement community concept, is preparing for the trend with gusto. In its annual survey of baby boomers, Del Webb found that 59 percent of those at the younger end of the range — ages 41 to 49 — plan to buy a new retirement home, and that 50 percent of those ages 50 to 59 would like to do so. Research from the National Association of Home Builders (NAHB) cools the outlook for a retirement homebuilding boomlet, however. NAHB reports that just 13 percent of boomers intend to buy homes in the next two years.

Del Webb is retooling its model somewhat for the current batch of buyers. Some newer developments in decidedly non-retirement locales like Chicago and New Jersey reflect a desire by retirees, as reported by the NAHB, Del Webb and others, to build closer to their current homes and families. These communities also feature previously unheard-of amenities like business centers and conference rooms in addition to the typical golf and gathering places.

Growing houses, growing pains

Overall, expectations and demands are higher than ever. Boomers who are in the real estate market want diversity in streetscapes and smaller, more flexible communities with informal spaces, as reported at a housing symposium held in May by the NAHB's Senior Housing Council. What's more, they're building bigger. "It used to be that retired people would downsize when the kids were gone. Maybe some still do, but look at Sun City Grand: Those houses are huge. There's just not the same interest with downsizing as there was a generation or two ago," Rex says.

With real estate markets in certain locations across the country acting exceptionally bullish of late (this after so many boomers felt the stock market sting during the dot-com downfall), many aging boomers are cashing in and building dream homes replete with amenities, simply because they can and even because they feel they've earned it.

It has a lot to do with how this generation sees itself: healthy, even young. But some worry that boomer buyers may be overlooking the fact that aging doesn't always mean freedom. Rather, it can bring lack of mobility and often, serious disability. "Most people when they retire, especially before 65, are still pretty healthy. They don't even want to think about a time when they won't have the ability to take care of things," says Rex.

In a recent report titled, "Beyond 50.05 Livable Communities: Creating Environments for Successful Aging," AARP details the necessity of features in the community and the home that will support living independently, or "aging in place." That means homes equipped for the physical inabilities that come with a person's age, forestalling premature moves to assisted-living facilities or nursing homes.

The report concludes that home modification is key, because 84 percent of those 50 and older wish to remain in their current residence. Features like wider hallways and doorways, a full bathroom and master bedroom on the first floor, step-free entrances and better lighting can make a home more livable for an aging person.

This emerging need brings with it whole new business opportunities and new markets, as was discussed in June at "Partnerships for Aging in Place: A Morton Kesten Summit," in Washington, D.C. Design businesses, contractors and other firms that can provide for aging in place will be needed. There will also be room for new experts in the areas of education, research and development of new materials and technology.

On the other hand, home modification and "aging in place" design are not part of the current consciousness among baby boomers, Rex says. "You can't get communities to require these types of design strategies because the vast bulk of people can't foresee themselves ever needing something like that." He said there is a perception that building new homes with these "universal design" features will add too much to the cost of the house, however it is far less costly to address these issues during the building phase than waiting to retrofit.

The AARP cautions that aging homeowners may find that they cannot afford to pay for the renovations when they finally need them; do-it-yourselfers may wait so long that they can no longer do the work themselves; or they may lack the confidence to select a contractor. If universal design features were built into more houses those functions would be available in the broader housing stock as needed.

Butler adds that many newer homes are built in such a way that they are more easily modified. Besides, he adds, "as people are building or renovating they're looking at things like: Do we want a pool or not? What about a spa? How big will the kitchen be? They're not thinking that, hey, in 15 years, maybe I'll need a wheelchair."

From dreams to reality

Boomers are thinking about health care, though. Its related costs top the list of financial concerns, according to Del Webb's research. But health care is just one aspect of an uncertain financial picture that includes possible changes in social security and pensions - issues that will inevitably affect housing choices, say Butler and Rex. "The cost of health care is just enormous and will take a bite out of people living comfortably," Rex says.

An important thing for many boomers, concludes Butler, is living in a home that will allow them to stay physically and mentally active as they get older. To some, that will mean some variation of a home-of-a-lifetime in a supportive community. Whether the boomers change society's concept of old age as significantly as they did youth may ultimately depend on their ability to adapt to rising costs.