Executive Summary
Household growth is decelerating to 860,000 annually through 2035, down from historical norms, fundamentally altering the multifamily opportunity landscape. Winners will be sponsors who localize strategy around three vectors: Sun Belt migration patterns, demographic-specific product types (BTR, senior housing), and supply-constrained submarkets. This framework identifies where concentrated demand will generate outsized risk-adjusted returns in an era of slower aggregate growth.
In real estate investing, the foundation of long-term demand is demographic—who lives where, in what form, and under what financial constraints. Over the next decade, household formation dynamics will be reshaped by generational transitions, regional migration, affordability constraints, and shifting preferences. For deal sponsors, LPs, and institutional allocators, anticipating where demand will emerge is as crucial as underwriting yields. In this article, I (Michael) present a forward-looking framework rooted in the latest data to identify the next waves of housing and real estate demand.
1. The Big Picture: Slowing Household Growth as a Baseline
1.1 New projections moderate expectations
According to the Joint Center for Housing Studies, U.S. households are projected to increase by approximately 8.6 million between 2025 and 2035—roughly 860,000 new households per year. That annual pace is lower than historic norms. From 2035 to 2045, growth is forecast to slow further, adding only approximately 5.1 million households (≈ 510,000/year) over that decade.
This deceleration is driven by demographic headwinds: aging cohorts, lower fertility, and moderation in net migration. The Congressional Budget Office similarly projects housing starts averaging approximately 1.6 million per year through the late 2020s, but tapering within the 2030s as population growth slows.
Implication: We cannot rely on blanket assumptions of growth across all geographies. To find upside, we must localize and segment.
1.2 Household growth does not equal new construction in many cases
Because of supply constraints, regulatory friction, and capital markets' cyclical dynamics, not all new households translate into new housing starts. In many markets, existing stock and adaptive reuse will absorb a portion of demand. Yet in markets where supply is constrained and populations rising, unmet demand may still justify new development.
2. Demographic Tailwinds: Generations and Preferences
2.1 Millennial and Gen Z forming independent households
After years of delay (due to post-2008 headwinds), younger cohorts are increasingly forming their own households. Some estimates suggest that this wave of household formation—mismeasured during pandemic disruptions—may be partially unmasked over the next few years. Particularly, the 25–34 age demographic shows rising headship rates.
These younger households are more likely renters initially, or to settle in smaller unit types (studios, 1–2 beds), co-living, or flex-formats.
2.2 Aging populations and downsizing
Meanwhile, Baby Boomers and older Gen Xers will continue aging, with many willing (or forced) to downsize, shift to age-in-place housing, or move into senior or assisted-living formats. The U.S. population aged 65+ is expected to grow meaningfully in percentage share.
This creates secondary demand for smaller footprints, multifamily configurations, and specialized senior housing niches (memory care, nursing, wellness-integrated communities).
2.3 Single-person households and nontraditional forms
Single-person or single-parent households are rising globally, and the U.S. is no exception. The solo living trend suggests demand for smaller, more efficient units, micro-apartments, accessory dwelling units (ADUs), and flexible leases.
3. Geographies That Will Capture Growth (and Those That Will Not)
3.1 Sun Belt and New Growth Arc regions
Migration trends continue to favor the South and West. Some estimates suggest 82% of U.S. population growth over the next 30 years will occur in the South and West. Many high-growth metros in Texas, Florida, Georgia, Arizona, and the Intermountain West are capturing significant in-migration, job creation, and affordability advantages.
Even within Sun Belt regions, submarkets adjacent to high-cost coastal metros (inland exurbs) may capture spillover demand.
3.2 Secondary and tertiary metros versus megacities
As megacities mature and face escalating costs and regulatory complexity, their relative growth advantage may fade. Recent academic analysis suggests that as urban systems mature, smaller cities and suburbs gain more equal growth trajectories due to cost arbitrage and quality-of-life preferences.
Housing and population growth in secondary and tertiary metros may outpace that in the largest hubs. For instance, Kansas City's housing growth between 2014–2024 (10.6%) outpaced the national average, even as population grew 8.9%.
3.3 Markets with supply constraints and regulatory bottlenecks
Markets with tight geography (coastal, mountain-constrained, land scarcity) and strict zoning will often under-serve demand. In those areas, even modest population growth may support outsized returns—especially in densification, infill, or vertical upgrades.
Also, supply deserts (markets with minimal new construction over years) may see demand backlogs. Phoenix, for example, saw home units grow 16.4% over a decade while population grew 15.5%.
3.4 Markets with demographic and economic tailwinds
To outperform, a region ideally combines in-migration, job growth, affordability, and supply constraints. Metros in the Sun Belt that draw younger households, foster economic growth (tech, health, logistics), and maintain amenable regulation are among the most promising.
4. Product Types and Asset Niches Where Demand Will Concentrate
Given the divergence in household formation patterns, investment performance will increasingly depend on product-type selection. The following segments represent the highest-conviction opportunities for institutional capital.
4.1 Build-to-Rent (BTR) and Single-Family Rental
Given the combination of households seeking single-family amenity in a rental format, the BTR sector is entering a phase of maturation. The recent trend of 134% growth in BTR supply between 2019–2024 underscores investor interest.
BTR models offer institutional-scale exposure to the middle renter market—especially in Sun Belt, exurban, and growth-adjacent corridors.
4.2 Mid-tier multifamily (Class B/C)
Luxury new construction is saturated in many coastal or gateway metros. The greatest demand often lies in mid-market multifamily: well-located, amenitized but not overbuilt, with moderate rents. Younger households entering the market are likely to accept tradeoffs for location, transit, and amenities.
4.3 Adaptive reuse and densification (horizontal to vertical)
In constrained supply markets, converting obsolete buildings (office, retail) into multifamily or micro-units can capture demand without requiring greenfield land. Similarly, adding infill density around transit or corridors can be accretive.
4.4 Senior housing, assisted living, memory care
As Boomers age, the demand for care-based and wellness-oriented senior real estate is expected to accelerate. Critically, more than 560,000 new senior housing units may be required by 2030, yet only approximately 191,000 are projected under current development trends.
This 369,000-unit delta implies a structural underbuild in senior housing, especially at higher-end demographics—representing one of the most compelling supply-demand imbalances in the sector.
4.5 Purpose-built student and co-living
In dense, transit-adjacent metros with strong education or employment nodes, co-living and purpose-built student housing can absorb the entry-tier renters seeking affordability plus community.
4.6 Flexible workplaces and hybrid live-work spaces
Although not pure housing, hybrid live-work properties, flex-studios, or ground-floor commercial with upper-floor residential may capture demand among remote and hybrid professionals seeking flexibility.
5. Regional Illustrations and Case Studies
5.1 Kansas City—a growth breakout
Between 2014 and 2024, Kansas City's housing units grew 10.6%, population by 8.9%. The metro continues to attract in-migration from more expensive coastal states. Developers are responding with new BTR communities such as Harmony at Clear Creek. This suggests that even second-tier metros with solid fundamentals can become demand engines.
5.2 Phoenix—catching up amid volatility
From 2014 to 2024, Phoenix's housing grew 16.4%, population 15.5%, reflecting strong catch-up growth. But recently, multifamily construction has slowed while population acceleration may reclaim the lead. This pendulum demonstrates how sensitive markets are to capital cadence, interest rate changes, and forward fundamentals.
6. Risks, Challenges, and Sensitivities
6.1 Interest rates and financing environment
High interest rates slow both household formation (by limiting mortgage availability) and construction activity. The CBO frames interest rates as a central uncertainty in housing start forecasts. For institutional investors, the cost of leverage directly impacts equity returns and development feasibility.
6.2 Affordability constraints
As home prices outpace income growth, many younger households are priced out. The National Association of REALTORS and other sources highlight that first-time homebuyers account for approximately 24% of purchases—lowest since 1981. Rental vacancy rates, rent inflation, and projected wage growth will all impact absorption.
6.3 Regulatory and zoning friction
Municipal restrictions, land-use regulation, slow permitting, and NIMBYism will impede delivery in many markets. Where these constraints bind, price premiums may accrue, but the barrier to entry is steep.
6.4 Demographic forecasting error
Forecasters always risk error in assumptions: fertility, net migration, headship rates, and cohort behavior may diverge. JCHS acknowledges that headship rate projection assumptions are among the most uncertain elements in their models.
6.5 Macro shocks and capital volatility
Much of real estate's demand is cyclical. An economic downturn, credit crunch, or regulatory change can disrupt growth trajectories. A conservative underwriting lens must stress-test for downside scenarios.
7. Strategic Recommendations for Investors and Sponsors
7.1 Overlay demographic forecasts into underwriting
Do not rely on broad population growth alone. Underlay your model with age-cohort headship shifts, migration trends, and tenant reference sets. Markets with negative net population may still absorb demand if younger inflows or densification occur.
7.2 Focus on supply-constrained geographies
Target neighborhoods or submarkets with physical or regulatory constraints to new supply (infill nodes, transit corridors, constrained geography). There, even modest household growth can translate into outsized rent growth.
7.3 Embrace product flexibility
Offer unit types across ranges—studio to 2-bed, flex units, micro-apartments, senior-ready design elements. The more optionality your project can accommodate, the better you can capture disparate demand.
7.4 Pursue the senior housing pipeline gap
Given the 369,000-unit underdevelopment in senior care real estate relative to demographic upside, backing high-quality seniors housing in markets with aging profiles may deliver attractive risk-adjusted returns with structural tailwinds.
7.5 Structure for rate regime volatility
Rate cycles influence both equity returns and debt availability. Structures that allow capital recycling, refinancing, or staged funding can mitigate mismatch risk. For fund managers, consider incorporating interest rate hedges or floating-to-fixed swaps in capital structures.
7.6 Monitor migration and employment shifts
Track not only population flows, but industry relocations (tech, logistics). Emerging employment corridors are often early indicators of housing pressure next.
8. Frequently Asked Questions (FAQs)
Q1: If household growth is slowing, is real estate in secular decline?
A1: No. Slower growth raises the bar for selectivity but does not negate demand. Many markets will still see household formation; the difference is that opportunity becomes more concentrated—so choosing the right geographies and product types is more critical.
Q2: Can new households be absorbed into existing housing stock?
A2: Yes, to a degree. In many markets, existing multifamily, aging single-family stock, or adaptive reuse may absorb new demand. However, in constrained-growth or undersupplied markets, new construction will still be required.
Q3: Will luxury and Class A multifamily outperform?
A3: Not generally. Because luxury supply is more elastic and more competed, mid-market and value-add assets often yield superior risk-adjusted returns—especially in growing or underserved submarkets.
Q4: How much does migration matter relative to organic births?
A4: Very much. In many metros, net migration is the dominant driver of population growth. As birth rates remain low, metro-level inflows (domestic and international) become central to demand.
Q5: Is senior housing overbuilt already?
A5: While some seniors housing subtypes are competitive, overall projections show a significant shortfall in units relative to anticipated demand in the coming decade (560,000 needed versus 191,000 projected).
Q6: How should LPs or sponsors position during rate volatility?
A6: Focus on conservative leverage, scalable projects, fixed-rate debt, and contingency buffers. Prefer projects where refinancing risk is manageable, and returns can absorb rate stress.
9. Conclusion and Next Steps
The demographic currents shaping U.S. household growth over the coming decade demand a sharper lens than in prior cycles. Slower overall growth means that selectivity, product adaptability, and region-level insight will differentiate winners from laggards. For investors and operators, the path forward requires leaning harder into data-driven underwriting, local constraints, and generational shifts.
Carbon's weekly market reports provide sponsors and LPs with proprietary demographic overlays, submarket opportunity scoring, and institutional-grade investment frameworks. Subscribe to receive our research and stay ahead of emerging trends:
Invest with Carbon Newsletter
Sources and Methodology
This analysis synthesizes data from: Joint Center for Housing Studies (Household and New Housing Unit Demand Projections), Congressional Budget Office (The Outlook for Housing Starts), NAHB (household growth trends), Fannie Mae demographic projections, NIC MAP (senior housing pipeline), media reports on Kansas City, Phoenix, and BTR growth trends (Axios, WSJ), and academic research on urban system maturation (arXiv). Data points and figures are cited as reported in original sources and have not been altered.
.svg)
