Multi-Generational Home Renovations Are Building Wealth Across Generations

It is often said that demographics are destiny. To a large extent, that is true; demographics help determine outcomes as diverse as the extent to which schools are overcrowded to the number of college applications to the number of people housed in assisted living centers. But other circumstances conspire with demographics to deliver more precise outcomes. Among these other circumstances are inflation rates, interest rates, college tuition, and the cost of housing.

The combination of demographics and other factors has induced many Americans to live in multigenerational households. According to a Pew Research estimate for 2021, 59.7 million Americans lived in multigenerational households, or approximately 18% of Americans. This represents an astonishing 271% increase over the course of a decade.  

This phenomenon has been driven in large measure by younger households. It has been estimated that 25% of young adults live in a multigenerational household, up from just 9% five decades prior. While this is a source of ridicule for some, there is no question that young people encounter financial pressures that Baby Boomers and members of Generation X often did not. For instance, according to the Education Data Initiative, average tuition and fees have risen by 141% over the past two decades at public four-year institutions. The cost of housing has also surged.

As always, the data are difficult to interpret. The pandemic, which was at its worst in 2020 and 2021, may have induced many young people to move back home, especially as many firms switched to remote work and many educational institutions stopped holding in-person classes.

In the aftermath of the pandemic, there has been some motivation for young people to depart multigenerational households. Nonetheless, it seems likely that the proportion of people living in multigenerational households will continue to rise.

This has everything to do with rapid increases in the cost of living. While many financially fortunate young people have managed to purchase homes or to lease high-amenity, high-rent apartments, others have struggled merely to pay for food, insurance, and other requirements. Living at home emerges as a natural, economical choice.

It is estimated that 68% of Gen Zers (those born between 1997 and 2012) that are over the age of 18 are living with their parents. It helps that many of their parents, often Baby Boomers, choose to stay in their homes. Data indicate that 77% of Baby Boomers prefer to age in place rather than moving into senior housing, thereby preserving a landing spot for their inflation-riddled children and grandchildren. 

With respect to construction, among the segments that benefit from such dynamics is home remodeling. Aging in place often requires modifications of staircases, bathrooms, and other household amenities. The need to accommodate multiple generations in a single household likely creates additional demand for modifications to homes, including finishing basements, soundproofing, thicker doors, secure locks, and modern security systems (people often spend a lot to protect their children).

What’s more, this phenomenon is hardly temporary. Survey data indicate that 72% of current multigenerational families plan to continue this arrangement long-term, creating sustained demand for specialized renovation services that transform single-family properties into multi-generational wealth assets.

America’s ongoing housing affordability crisis reinforces these patterns of behavior. A recent U.S. Chamber of Commerce report entitled The State of Housing in America indicates that there is a “severe shortage of over 4.5 million homes” in the U.S. This deficit is “rooted in a decade of underbuilding following the Great Recession and surging demand from millennials entering prime home-buying years.” According to the U.S. Census Bureau, by 2021, nearly a third of American households, or over 42 million, were cost-burdened by housing, meaning that they spent more than 30% of their income on housing costs. 

Undoubtedly, the situation is now worse. Starting in 2022, mortgage rates began to edge higher. At the same time, the average value of an American home effectively doubted, from $183,126 in January 2015 to $355,328 precisely a decade later. With many communities restricting housing development for a number of reasons — including fear of outsiders, school overcrowding, and traffic — housing costs are destined to remain elevated, though lower mortgage rates would certainly help.

Beyond cost of living, there is at least one other demographic factor that has produced a boom in multigenerational households — caregiving. Approximately 33% of multigenerational families are responding to the economics of caregiving. For contractors, this represents yet another distinguishable market that requires technical expertise in universal design, Americans with Disabilities Act (ADA) compliance, and architecture designed specifically for the elderly; a specialization that generally commands higher pricing due to nature of the work.

For families that are financially capable of required investment, accessory dwelling units (ADUs) represent a high-value segment of this market, with project costs ranging from $100,000 to $300,000. From an economic perspective, these projects make financial sense when multiple generations share investment burdens, creating “risk pooling.”

Technical complexity (including things such as arranging for separate utilities, navigating local permitting ordinances, and zoning compliance) create substantial barriers to entry, which in turn supports the profitability of such work. In short, demographics often create circumstances amenable to outsized profitability. 

In the same vein, basement conversions, typically priced at $30,000 to $75,000, represent the volume opportunity within this market. Technical requirements — including waterproofing, egress compliance, and electrical upgrades — once again favor contractors with specialized knowledge, including knowledge pertaining to fire safety; heating, ventilation, and air conditioning; and functional design.

In-law suites represent another potential solution (though also a headache for many spouses). In-law suites generally average in cost from $40,000 to $90,000, thereby occupying a useful middle-market segment that positions families to balance need for proximity with a modicum of privacy. For financially able families, structural additions exceeding $150,000 in cost supply more comprehensive living solutions. 

Wealth Creation Through Multigenerational, Collaborative Investment

Given growing demand for multigenerational housing, expenditures on in-law suites, finished basements, etc., are not only reflections of cost, but are also investments. In other words, more Americans will be searching for housing capable of accommodating multiple generations. This may, of course, result in growing demand for larger homes, including those offering four or more bedrooms. But it will also advance the marketplace for families seeking to age in place in currently owned homes.

If one plays that forward, then the greatest financial beneficiaries will be younger household members that stand to inherit part or all of such homes.