- The composition, location, and purchasing power of real estate demand are all changing simultaneously. Household formation, affordability, aging, migration, and income stratification are compounding in ways that reward granular analysis and challenge conventional assumptions.
- An aging population is generating substantial demand for senior housing and health care real estate, the mid-30s cohort is the largest in the country and is moving toward home buying and peak spending years, and while domestic moves have declined overall, there is a shift in regional destination. At the same time, the wealth gap between the top 10 percent and all others has widened, reinforcing a K-shaped consumer economy.
- The United States is short several million housing units by most estimates, but a growing share of the population cannot afford the units that exist or that could feasibly be built. The investment implications of those two statements are quite different.
“There is a difference between structural undersupply and affordable undersupply and building what people can afford.”
Emerging Trends has discussed demographics for quite a few years, touching on the aging of America, the Sun Belt migration story, and the millennial generation’s size and preferences. This year, the story is about demographic shifts and how these shifts are changing who demands real estate, where they demand it, and what they can afford to pay.
The Demand That Is Growing
Strong growth is seen in shifts in two large population cohorts.
First, as the “Demographic Shifts Impacting Real Estate” spotlight points out, the population in their mid-30s is the largest six-year cohort span in the country. With birthrates shifting to later years, this cohort is at prime first-time homebuyer age and moving toward peak spending years.
And second, as Chapter 2’s discussion on senior housing describes: the oldest baby boomers turned 80 in 2026, the age at which a move to senior housing is more common, and that demand wave is arriving at precisely the moment the development pipeline is at its thinnest, a mismatch driven less by softening interest and more by construction costs, insurance, labor, and the cost and availability of capital. Further, that discussion points to the growing consumer interest in active adult communities, now becoming a distinct product type.
“Senior housing has done really well because it was underbuilt . . . and the baby boomers are now turning 80.”
The investment opportunity is real, but it is not simple. Senior housing is an operating business, not a passive real estate holding, and the distinction matters. Several interviewees note that institutional investors who struggled with senior housing in prior cycles did so not because the demand thesis was wrong but because they underestimated the operational intensity.
The aging population also generates demand that extends beyond senior housing. Medical office, outpatient facilities, and health care–adjacent real estate all benefit from the same demographic tailwind, and from a structural shift in health care delivery toward outpatient settings that has been underway for more than a decade.
Where Demand Is Relocating
Migration patterns are shifting in ways that affect the geographic distribution of real estate demand, though the changes are more nuanced than the "Sun Belt cooling" narrative suggests. As the “Demographic Shifts Impacting Real Estate” spotlight illustrates, the domestic migration boost to the top receiving markets has declined meaningfully from its post-pandemic peak, and regional shares of domestic migration have shifted, with the Midwest and Northeast gaining share while parts of the Sun Belt have given some back. Urban counties continue to lose domestic households to suburban, exurban, and rural counties. The offset by the arrival of new immigrants to urban areas has diminished.
At the same time, young families with children continue to choose Southeast, Florida, and Texas markets at elevated rates, drawn by housing costs, availability and affordability that remain attractive relative to higher-cost alternatives. The Sun Belt story is not over. It is becoming more differentiated, with clear distinctions between markets that have absorbed their supply pipeline and those that have not.
These shifting patterns have direct implications for submarket selection—the subject of Trend 5—because the demographic forces described here are among the primary drivers of the geographic divergence now visible across the industry.
Immigration policy is affecting demand through multiple channels. An estimated 30 percent of construction workers are foreign-born, and enforcement changes are extending project timelines and raising development costs. The effect on the labor force is direct and measurable. Immigration also affects housing demand: immigrants tend to be renters at higher rates than the native-born population, and any sustained reduction in immigration flows has implications for rental demand in gateway cities and markets with large immigrant populations.
The K-Shaped Economy and Demand
As the “Demographic Shifts Impacting Real Estate” spotlight documents, the concentration of wealth gains since 2020 has been substantial, with the majority accruing in the highest-income households. This K-shaped economy is well-reflected across property types, although in various ways. The retail sector is strong at both the luxury, experiential market and the value market, while Class A office buildings in desirable locations are strong performers, Class B and C in less attractive locations face steep challenges.
Still, without question, the concentration of purchasing power at the top end is most impactful in housing.
The Affordability Paradox
The consensus view holds that housing unaffordability is favorable for multifamily: if people cannot buy, they rent. The logic is intuitive. It is also, according to several interviewees, incomplete.
“Housing unaffordability does not automatically create apartment demand. What it actually does, at a certain threshold, is suppress formation entirely. People double up. They stay with family. They leave the market. That is not demand; that is demand destruction.”
This observation challenges one of the industry’s most widely held assumptions, and it deserves serious consideration. Household formation rates among younger adults have decelerated over the past several years, and, according to data from Harvard’s Joint Center for Housing Studies, the pattern correlates more closely with rent-to-income ratios than with homeownership affordability alone. When both owning and renting become unaffordable in a given market, the response is not substitution between tenure types; it is withdrawal from the housing market altogether.
The distinction between structural undersupply and affordable undersupply is where the investment analysis becomes specific. Structural undersupply means the country does not have enough housing units. Affordable undersupply means it does not have enough units at price points that match the income distribution of the people who need them. Both conditions exist simultaneously, but they carry different implications. Structural undersupply supports the case for new development: more units are needed. Affordable undersupply complicates it: because the units that are economically feasible to build often do not serve the income cohorts where the shortage is most acute.
Declining birth rates add a longer-duration consideration. The number of Americans turning 18 each year is approaching its peak and is projected to decline, a trajectory the “Demographic Shifts Impacting Real Estate” spotlight accompanying this chapter documents in detail. At the same time, the largest age cohort in the country is in its mid-30s—historically the peak years for household formation and homebuying, though elevated costs are delaying both. The size of this cohort represents substantial latent demand, but whether and when that demand materializes depends on affordability conditions, mortgage rates, and the availability of housing at price points this generation can access. The implications do not materially affect 2027 operating statements, but they are reshaping long-term underwriting for anyone evaluating student housing, entry-level multifamily, or markets whose growth depends on a continued pipeline of younger residents. (See “Demographic Shifts Impacting Real Estate” for the detailed demographic data and projections that underpin these observations.)
With natural population growth decelerating and workforce growth slowing, immigration will increasingly determine how much the United States grows over time, a reality that makes immigration policy not just a major labor market issue but a foundational variable for real estate demand projections.
