Look to the 30-year-olds when selling a home

Demographics may not be destiny, but it does help explain a lot of long run forces shaping our economy.  Take housing, for one.  People in their early 20s are overwhelmingly renters.  By the time they hit 30, they are buying their first houses.  According to the real estate firm CoreLogic, the average age for first time homebuyers is 31, and the average age at which people move up to their next house is 39.

So as far as housing markets go, the key age group driving housing sales is people in their 30s.  That simple fact helps to explain a lot about Vermont’s housing market.  The Census Bureau estimates that there were 70,600 Vermonters between 30 and 39 years old in 2015—about the same number as in 2010; 20,000 fewer than at the turn of the millennium and 30 percent fewer than at the 1995 peak, when the youngest Baby Boomers were 31.

Vermont’s demographics are not putting any upward pressure on the state’s housing markets—in fact it’s just the opposite.  Housing prices today are essentially the same as they were in 2006 and after adjusting for the low amount of inflation the economy has been experiencing, real housing prices are below what they were at their 2007 peak and are back to where they were in 2004.

That lack of housing demand is also reflected in low levels of home construction.  The Census Bureau reports that a little over 900 single family homes were permitted in 2015, about the same as each of the last seven years.  Fifteen years ago, more than 2,000 new single family permits were issued.  You have to go back to the mid-1960s to find a time when the number of building permits was a low as it has been for the past seven years.

Housing is important for Vermonters for a number of reasons.  The most basic is that it provides a roof over our heads.  But for the 70 percent of Vermont households who own their own homes, it’s also a major source of financial wealth.  But with prices going nowhere, many Vermonters will find that their net worth is lower than they expected it to be.  Vermont is a rapidly aging state, and retiring or soon-to-be retiring Baby Boomers who thought they would be able to cash out some or all of the equity in their houses may find their houses are worth less than they expected.  That’s in large part due to the stagnation in prices which, in turn, is caused by the lack of housing demand.  Or, to put it more bluntly, who is going to buy your house when you retire or want to sell it if there are so few new potential buyers in the state?

If there aren’t new buyers to help push up prices, then another way to maintain or increase prices is to limit the supply of new housing. That’s also happening.  Making it hard to develop land, expensive and difficult to go through the permit process, and passing restrictive zoning laws in towns and cities are all ways to limit the construction of new houses and therefore increase the price of existing homes.  President Obama’s chief economist at the Council of Economic Advisors has written at length about policies that may be well-intentioned, but nonetheless serve to elevate the price of houses above where they would otherwise be.  That limits geographic mobility and especially hurts lower income people who are priced out of the housing market.

Although President Obama’s economist was thinking about big cities where prices are extremely high, such as Boston, New York, and Los Angeles, the same principles hold in Vermont.  Although we have a lot fewer new homes being built today than 10, 20 or 30 years ago, changing demographics is only part of the story. From the smallest towns to the largest city in the state, over the past few decades restrictive planning rules and zoning regulations have pushed the price of housing up and reduced the number of new homes built.

That benefits people who own homes, but at the cost of pricing a lot of Vermonters out of the housing market, and even more importantly over the longer term, making Vermont a more expensive place to live and work.

30 to 39 Year Old Population History

Art Woolf is associate professor of economics at the University of Vermont.