As the housing industry continues to claw its way out of the downturn, the recession and unemployment picture are dramatically influencing the way consumers view homeownership, according to the “Housing in America” panel during ULI’s fall conference in Washington, D.C. As the country’s two largest demographic groups—baby boomers and Generation Y—reassess priorities, household formation is down; tastes and demands are shifting toward walkable, transit-oriented communities; and the overall buyer profile within age groups is simply not as cut-and-dried as it once was.
Even as housing recovers, we’re not going to return to the same trends and tastes, says John McIlwain, senior resident fellow at ULI. “What people will want … will be substantially different.”
Among all age groups, the economy continues to be the chief driver. The jobs outlook is not only impacting sales and inventory, but also household formation, which has dropped to 25% of the norm, McIlwain reports, stemming from a decrease in immigration and the recession forcing young adults to live with their parents (or even vice versa). This trend, he says, won’t reverse until unemployment begins to drop.
Though the recession hit everyone hard, its impact on Gen Y will likely have the most long-lasting influence on housing trends. With 83 to 85 million people born from 1981 to 1999, it’s the largest demographic group the country has ever had, and therefore has massive buying potential. Problem is, they’re also the most economically constrained, McIlwain says, with a 30% unemployment rate and an average $23,000 post-college debt. They’re not saving for a down payment, and their parents, struggling to recover their own retirement savings, can’t help.
As a result, this age group’s view of the American Dream of homeownership is vastly different. “People in the youngest generation have seen the struggles family and friends are going through, and the assumption of the house as a wealth generator is very different,” says Marty Jones, president of Corcoran Jennison Cos.
Richard Koss, director of economics at Fannie Mae, found similar changes in consumer surveys conducted during the past year. In January, 70% of consumers surveyed viewed homeownership as a safe investment; by July, that percentage had dropped to 67%; in 2003, confidence was as high as 83%.
The combination of these factors, McIlwain says, will likely lead to unprecedented rental rates during the next 10 years.
GEN Y OPTIONS
To meet the challenge, developers and builders must find a way to provide products that Gen Yers can afford in locations they desire. Among their wants and needs:
Urban settings or, if suburban, walkable town centers and mixed-use communities. They desire smart growth and density, and are willing to accept a less ideal home if they can walk to work and retail.
A focus on work-life balance and connectivity.
WINKs: Woman with income, no kids. This group, typically 26 to 29 years old, is highly educated. They’re renters, but are likely to buy before marriage. Like others, they desire walkable neighborhoods near transit.
More young adults are delaying marriage; 85% of household growth will be households without kids, says Charles Hewlett, managing director of real estate advisor Robert Charles Lesser & Co.
BABY BOOMER TRENDS
Baby Boomers begin turning 65 next year. Here is how this group will continue to impact housing trends:
They’re retiring earlier than previous generations; however, many still work, either part-time, in a lower-level position, or as a consultant.
Many will age in place; however, in 10 years, we will see increased demand for seniors housing as the first wave reaches the mid and late 70s.
The earlier prediction that baby boomers will move to downtown urban areas has not happened, Hewlett says. But they are looking for what he calls “safe urbanism”—walkable, denser areas with transit.
They want locations with an affordable cost of living and quality healthcare. Both of these factors trump climate, Hewlett notes.
They look for communities with opportunities for continuing education, culture, and an active lifestyle.
They still count Florida and Arizona among the top five retirement locations, but the Carolinas, with slightly cooler temperatures and lower threat of hurricanes, are becoming their new Florida, Hewlett says.
Among the challenges and trends across markets:
Golf course communities are out; conservation communities with passive open space and trails are in.
Walkable, transit-oriented communities or those with town squares are “going to be a key part of creating projects that attract interest,” says Jones.
Immigration will continue to be a huge housing influencer; however, where previous generations settled in urban areas, many new immigrants are heading straight for suburbs, says Hewlett.
In the rental market, green is still being driven more by investors than consumers, Jones reports.
The U.S. will grow by another 100 million people by 2040, and 60% of that will come from just 20 metro areas, primarily in the coastal areas and the south.
Finally, there’s the question of what will happen to the McMansion. In new construction, too-large houses have fallen out of favor—but what about existing homes? The vast gap in numbers from baby boom to Generation X, along with continued economic woes and shifting tastes, left one panelist to wonder who will buy baby boomers’ larger houses and what further impact those properties will have on buying trends over the next few years. Stay tuned.
Katy Tomasulo is Deputy Editor for EcoHome.