Homeownership is still the American dream, but the home Americans are dreaming about does not look like yesterday’s traditional house with its formal living and dining rooms, large yard, and price that is out of reach for many people.
“Less home, more community” is what many homebuyers say they want, from millennials buying their first house to baby boomers downsizing from a large property, said Adam Ducker, a senior managing director at RCLCO, a real estate advisory firm where he leads the Real Estate Economics practice area.
Ducker and a panel of industry experts addressed the national shortage of housing that people with moderate incomes can afford to buy and discussed strategies for increasing supply during the ULI Spring Meeting. Their conversation was prompted by a new report, Attainable Housing: Challenges, Perceptions, and Solutions, from ULI’s Terwilliger Center for Housing and RCLCO.
The panel considered strategies for developers, builders, and architects to create homes and communities combining the attainable prices and features that fit the way people live today and the amenities homebuyers desire. “People will trade off small space with access to parks and trails,” said panelist Malee Tobias, senior vice president and chief marketing officer at Newland, a national residential developer based in San Diego.
“Homebuyers are moving away from those formal spaces, the living room, the dining room. I get excited about the laundry room, the mud room, indoor/outdoor living” and the kitchen as a center of family activity, Tobias said.
The panel included Jeremy Sharpe, chief operating officer of Rancho Sahuarita, the developer of the master-planned community with the highest level of amenities in southern Arizona.
Panelist Randall Lewis is executive vice president and a principal of Lewis Management Corp., a member of the Lewis Group of Companies. He oversees the marketing activities for all regions of the organization. “Sixty percent of the market isn’t looking for this huge house,” Lewis said.
That, however, is what is available in many cases. Households are smaller, with people staying single longer and having fewer children, and baby boomers are seeking smaller homes, but larger, more expensive homes are a growing part of the market.
Homes over 2,400 square feet (223 sq m) have increased from 32 percent of the market to 50 percent since 1999. Smaller homes up to 1,800 square feet (167 sq m) declined from 40 percent of the market to 27 percent. Those with less than 1,400 square feet (130 sq m) declined from around 16 percent of the market to around 7 percent, the ULI-RCLCO report found.
The median price of a new home was $325,100 in October 2018, according to the National Association of Home Builders. A household would need an annual income of $107,000 to afford it.
We’re very proud to share our latest report with @UrbanLandInst, where we look at the misalignment between buyers and builders, and how it has contributed to the #affordability challenge. #realestate #data #economics https://t.co/mPLLGsR44t
— RCLCO Real Estate Advisors (@RCLCO) April 20, 2019
“The market has become that first-time buyer,” said Sharpe, but the smaller, attainably priced homes they want are harder to find.
Developers and homebuilders are seeking innovative ways to meet demand for the attainable housing needed by households earning 80 to 120 percent of their area’s median income. In Washington, D.C., that would be an income of $119,400. In Phoenix, it is $71,000, according to the report.
Instead of a formal dining room, luxury finishes, or lower-density neighborhoods, the amenities valued by today’s homebuyers are things such as fitness centers and trails. In the age of e-commerce, communities that provide for convenient package delivery are desirable. So are communities with arts and cultural activities, including food, wine, and farmers markets. Walkable mixed-use neighborhoods with restaurants and shops also appeal to homebuyers.
“There are trade-offs. They’re giving up the yard,” but getting amenities that help create a lifestyle, said Tobias.
In addition to the shape and location of the home, builders are considering how offering simplified versions of their homes can make prices more attainable. Lennar Homes and others are offering different levels of finishes to create more price flexibility, Lewis said. The countertops might not be granite and the flooring could be laminate or carpet instead of hardwood, but the house is well built. “Builders communicate it’s not just a cheap house. It’s not cheap; it’s value construction,” Sharpe said.
More “missing middle” attached housing and more high-density detached cluster homes are also solutions.
In addition to a lower price, attainable homes can offer buyers a lifestyle choice of maintenance-free living and financial flexibility without sacrificing function, style, or amenities, the ULI-RCLCO report says.
That is exactly what many homebuyers, particularly millennials, are looking for, said Tobias. “We’re in the experiential economy. For millennials in particular, experiences are very important,” she said. “It’s a takeoff of the sharing economy. They want to simplify.”
This and all other sessions discussed at the 2019 Spring Meeting are now available for members in Knowledge Finder.