What Does a Historic Wealth Transfer Mean for Luxury Real Estate and Beyond?

Inherited generational wealth in the form of real estate, investments and cash will likely have an outsize impact over the next decade on individuals in their mid-to-late 40s from wealthy families, according to a recent report on family wealth transfer by London-based data firm Altrata.

Many luxury real estate agents say that the great wealth transfer has already begun. In fact, slightly more than 70% of The Agency agents polled said that some of their clients rely on family money to purchase homes.

“Generational wealth transfer is already a motivating factor in purchasing power,” says Paul Lester, Partner with The Agency in Los Angeles. “We see 30-year-old couples who can actively compete for the best properties in the $10 million, $20 million or $30 million range.”

Buyers with the support of family wealth now and the promise of more to come have an advantage over other buyers, Lester says.

“The ‘wealth envelope’ allows them to make decisions more succinctly and with less worry about their financial future,” he says.

An estimated $31 trillion is expected to be transferred over the next decade by 1.2 million people, each with a net worth of at least $5 million. Two-thirds of that wealth, nearly $20 trillion, is anticipated to be passed on by about 155,000 individuals, each with a net worth of $30 million or more, according to Altrata. The report found that most of the wealth will go to heirs who are among the youngest Gen X generation and the oldest Millennials.

The wealth transfer is likely to go to households that are already wealthy, so they’ll just live a “little more lavishly,” says Mike Biryla, agent with The Agency New York, who says a slow trickle of inheritance is already impacting high-net-worth households in his market.

“The markets where I work are among the wealthiest in the country and we’re already seeing younger generations buy $4 million to $5 million homes with inherited wealth,” says Tracy McLaughlin, agent with The Agency in Marin County, California, and Aspen, Colorado. “In a lot of cases, parents are helping them buy homes as an investment in their future.”

McLaughlin says that in Marin County more buyers have inherited wealth than in the past, when luxury buyers were more likely to be high earners in the technology, financial and legal sectors.

WHAT LUXURY MEANS TO YOUNGER GENERATIONS

As young Gen Xers and older Millennials inherit more family wealth, changes in attitudes are already occurring, says Oliver Chen, Managing Director and Senior Equity Research Analyst covering retail and luxury goods at TD Cowen in New York City.

“To younger consumers, luxury means time and convenience,” Chen says. “They’re also focused on wellness, longevity, happiness and beauty. But at the core, money brings convenience.” In the luxury housing market, that means younger wealthy buyers are more likely to look for features that contribute to their physical health and wellness, connect to nature and improve their mental health, Chen says.

Since the great financial crisis in 2008, Chen says younger consumers expect more transparency around everything they buy. “It’s fashionable to get a bargain, to shop at Costco and to mix a Birkin bag with a Target T-shirt,” he says. “When they spend money, they want something timeless such as a classic piece of jewelry or a watch that they can evaluate based on the cost per wear.” Previous generations valued buying specific items such as a Mercedes, a particular china pattern or a rug, but now luxury intersects with individuality and personal style, Chen says.

There’s also a more responsible attitude about wealth, Lester says. “People who are inheriting wealth now are more aware of what it takes to keep money over the long term,” Lester says. “They want to be careful so their generational wealth and their families continue to succeed.”

Generally, younger generations are more discriminating curators of collections such as art, clothes, cars and real estate, trending toward minimalism, Lester says. “They’ll collect 10 cars instead of 30 and maybe sell a car or two when it makes sense,” he says.

McLaughlin sees a big difference between secondhome buyers in Aspen and buyers in Marin who are purchasing their primary residences. “Young buyers in Aspen are buying art and furniture to match the quality of their home, while Marin buyers purchase very expensive homes without adding a lot of art,” McLaughlin says.

Gen X and Millennial buyers everywhere are also more sensitive to security issues and are likely to want cameras and electronics everywhere, McLaughlin says.

“Younger generations are also more concerned with mission-focused spending,” Chen says. “If they have the resources, they will try to use them for the greater good or invest in companies that pay attention to their carbon footprint and other causes.” McLaughlin says that as younger buyers become wealthier, their climate-conscious focus will increase demand for energy-efficient homes with solar power. “We see more socially conscious people in the younger generations who are committed to solar energy and electric vehicles, but they want their luxuries, too,” says Jon Grauman, Principal, Grauman + Rosenfeld team with The Agency Beverly Hills.

"Plus, Millennials and younger Gen Xers focus more on experiences than material goods, Biryla says. “Their work is different, too, since so many in their generations are able to work remotely there’s an added incentive to own multiple places,” Biryla says.

In New York City, Biryla says he’s seeing a wealth shift from the traditionally high-end Upper East Side to neighborhoods more popular with younger generations.

“There are already some challenges with the Fifth Avenue co-op market because as younger generations inherit those apartments, they sell them so they can buy something new in Tribeca or the West Village,” Biryla says. “They’d rather offload them than renovate or risk being rejected by a co-op board if they can’t meet certain financial requirements.”

While Biryla says some of the youngest wealthy individuals prefer the nomadic life and will own just one home and rent other places, those in their mid-30s to mid-40s are more likely to establish a luxury home in New York City with a second retreat nearby in the Hamptons or Upstate New York.

“A lot of these buyers are interested in value-add opportunities such as buying a Hamptons home for $3 million to $10 million since they’re easy to sell and can bring in significant rental income,” Biryla says.

Rather than buy a second or third home, some young wealthy people choose to travel to a resort or spa that provides similar privacy to a single-family home without buying one, Lester says.

“There’s a group of younger Gen X and Millennial buyers who want to identify places where they can live a more responsible life,” Lester says. “They want to achieve zero- carbon emissions, which means they’re more likely to choose a property where they can create a single compound of homes for themselves and guests without flying between multiple homes.”

Depending on how and where they work, some younger wealthy households choose to have two primary homes and split their time evenly, Lester says.

Whether they invest in a single spectacular property, two homes in the U.S. or a global collection of residences, as the next generation inherits more wealth they’re likely to influence luxury real estate markets for decades into the future.