Every so often, a consumer trend emerges that could mean a lifestyle transformation for millions of Americans and have profound implications for investors as well as providers of consumer goods and services. The expected rise in second-home ownership over the next decade is an example of just such a trend.
To set the scene for this anticipated development, think back several decades when only a few wealthy households owned more than one car. These days, a minority of households have just one means of personal transportation, and 18 percent of households own three or more cars. Multiple-vehicle households are now the norm in the suburban landscape, and along the way, fortunes have been made selling and servicing America's fleet of cars, trucks and SUVs.
Over the next decade or two, owning a second home could become as prevalent as owning a third car. Imagine if the number of individuals owning a second home — which is now 6.4 million people, or about 6 percent of homeowners — started to rise so quickly that it topped 10 million homeowners over the next decade. If this occurs, the rise in second-home ownership could fuel a boom in spending on homes and home furnishings that would rival the sales of SUVs. Such a surge is becoming more likely because of the convergence of three demographic trends that drive second-home ownership: shrinking families, aging and more affluent households and new ways of working from remote locations.
Why do people buy a second residence? Some city dwellers want a place in the country for weekends and holidays. Some Northerners want a warm place to go to in the winter, and some Southerners want a cool place to go to in the summer. Some suburbanites want a condo in the city to avoid a long commute and for use after a night on the town. And some vacationers buy a cottage because they like going back to the same spot year after year.
Feeding those consumer desires are recent changes in the tax laws that have made it more economically advantageous to own a second home. As a result, despite the economic downturn, many realtors are marketing second homes as another investment for your retirement — only this is one investment you can periodically live in.
The U.S. Census Bureau recently reported that household size is at an all-time low, while household income is at an all-time high. In fact, household size is continuing to shrink, and only one-third of households have children, whose active schedules tend to limit the use of a second residence. Nearly 30 million households in the U.S. are married couples with no children, who, according to the Bureau of Labor Statistics, are twice as likely to own a second home as married couples with children under 18.
During this decade, the fastest rising age group will be 55- to 64-year-olds, the age cohort with the highest propensity to own a second home — nearly 1 in 10 of these households own one. As Baby Boomers take over that age group, the projected increase of 7 million households in the 55 to 64 age category — combined with just a 1 percent increase in their propensity to own two places — would mean an additional 1 million second homes.
Other demographic segments, however, also have a high tendency to own a second home. Eight percent of the 12 million households of those age 65 to 74, for example, own a second home. These mostly retired seniors are likely to use this additional residence seasonally, when it's too cold or too hot at their primary home. A mere 1 percent increase in their propensity to buy a seasonal residence would mean another 1.2 million units.
Other groups likely to buy second homes include about 10 percent of the 24 million households with an income of $75,000 or more. This is a growing group: The Census Bureau reports the number of upper-income households has increased over 40 percent since 1990. Even if that growth moderates to only 30 percent in this decade, the rising number of upper-income households under age 55 can be expected to buy at least one additional $700,000 home.
Independent and often wireless workers are also expected to fuel this anticipated rise in second-home ownership. The Census 2000 Supplementary Survey Profile recently revealed that one-third of all employed people, or 43 million Americans, work in management, professional or related occupations. And the Bureau of Labor Statistics projects that by 2008, approximately 2.5 million of them will be self-employed.
Through the use of cell phones and high-speed Internet connections, many of those wireless workers can set up shop anywhere they please. If going to the office daily becomes less important, more of these workers may spend additional days working from their vacation retreats. If only a small fraction of those workers decide to buy such a retreat, it could mean an additional 500,000 to 1 million second homes.
The bottom line is that the anticipated high growth of demographic segments most likely to buy a second home, combined with flexible work patterns and recent tax incentives, mean that Americans may purchase 3.6 million second homes during this decade (that's almost 1,000 per day). This would bring the number of households that have second homes to 10 million by 2010, from 6.4 million today.
Besides the obvious benefits to home builders, realtors and home furnishing suppliers, there could also be a sharp increase in business to retailers and a rise in property values in places of natural beauty, such as woodlands, islands, riverfronts, lakeshores or beachfronts. Locations that are equipped with superior phone service and that offer high-speed Internet services may find demand for second homes exceeding that for year-round use.
Another consequence of more people owning second homes would be an increase in seasonal as well as weekend or holiday travel. This would mean more highway traffic and more people eating food while on the road. It may also mean that people will spend less money maintaining or landscaping their primary residence. But since people will be leaving either their primary or secondary residence empty for longer periods, we may see a big increase in the installation of home security systems.
Peter Francese is the founder of American Demographics. He can be reached at [email protected].