As the housing market continues to recover from the financial crisis, it must simultaneously prepare for the impact of the changing US population on the rental market and on homeownership.

Experts discussed this trend at the Urban Institute’s recent DataTalk on Demographic Change in the United States and its Implications for Housing and Mortgage Lending, as well as the policies and programs that should be considered in response.

By 2060, we’ll have 100 million more Americans, according to Rolf Pendall, Director of the Urban Institute’s Metropolitan Housing and Communities Policy Center. And from 2020 to 2030, people of color will form most of these new households (88 percent).

The new shape of households

Homeownership could be a significant contributor to the prosperity of these new families—and potentially of the entire country. But an increasing portion of these new US households differs from those with whom mortgage lenders have traditionally worked noted Walter Scott, senior economist at Fannie Mae. Many have a shared or extended family structure where adults that have not co-signed the loan are regularly making a significant contribution to the household income and bills.

Traditionally, lenders can’t consider these financials contributions in their assessment a loan’s risk, and thus underestimate the true household resources. Recent research by Scott suggests that more income-earning adults in a household both create a stronger attachment to the home and more income stability, allowing the household to make mortgage payments even if one borrower experiences a shock to their income. As a result, these extended income households are more likely to stay in their home even when their mortgage is underwater, suggesting that lenders could qualify these borrowers for larger mortgage loans without generating excessive risk.

Notably, these extended families tend to be made up of groups that mortgage lenders have traditionally struggled to serve: less educated borrowers, immigrants and minorities, single borrowers, and borrowers who have retired or become disabled within the last five years.

Fannie Mae’s new program, HomeReady is an attempt to put this research into action by allowing lenders to consider some amount of this non-borrower income in making a mortgage decision. This and other innovative programs will be required to ensure that these increasingly diverse households continue to benefit from homeownership.

Preparing for sharp growth in the number of renters

The demographic trends mean that, for at least the next 15 years, more new households will rent than own. The largest population group by age in the United States is the millennial generation, which in general has been slower to marry and form independent households than past generations. This timing impacts the rental market, as young adults either remain in their parents’ home or continue to rent, moving more slowly into homeownership. But the trend toward an increasing proportion of renters is much broader than the millennial generation; it is true across virtually all age groups. And certainly, the huge number of households that lost their homes in the foreclosure crises has contributed to the growth of the rental population.

Thanks to the large size of the baby boomer generation, we have a rapidly aging population in the United States. This means we’ll have an increasing number of seniors with their unique challenges and needs. We will need to encourage and support home modifications that make homes safer for seniors, particularly changes that reduce the number of trip-and-fall injuries. Senior renters have a special set of issues: they tend to have fixed incomes, which will be a problem as competition for affordable rental units pushes up rental costs. We expect the number of cost burdened senior renters to more than double by 2030.

As housing market stakeholders and policymakers continue to recover from the past and prepare for the future, their efforts should be aimed at ensuring, as Jim Carr put it, that the post-crisis housing finance system does more than the failed pre-crisis system.