Next Generation Master Planned Communities – Planning for the New Homebuyers

The group goes by various names: the Echo Boomers, Generation Y, the Millennials, or the Obama Generation. By all rights they should be starting to buy their first homes in large numbers. Only they are not. They are not forming new households despite being at the prime age for moving out on their own. Learn what John McIlwain thinks is a trend that is here to stay and will reshape master planned communities.

The good news for developers and builders, of which there is all too little these days, is that the next generation of first time homebuyers is the largest in U.S. history, some 82 million. Unfortunately, that may be where the good news stops.

This group goes by various names: the Echo Boomers, Generation Y, the Millennials, or the Obama Generation (Gen Y). They are in their late teens through early 30s and by all rights should be starting to buy their first homes in large numbers. Only they are not.

Why? First, they are not forming new households despite being at the prime age for moving out on their own. The U.S. Census reported recently that 3.8 million people have moved in with family members or roommates. This has resulted in a drastic drop in U.S. household formation from an average of 1.6 million a year through 2007 to under 400,000 for the past several years. Instead of moving out, Gen Y is moving back home, bunking in with three or four roommates, or going back to school and a dorm room.

When will this tide be released? When jobs come back and the unemployment rate is back to 6-7%, which may not be for several more years according to most economists.

Second, when these young people do come into the housing market don’t think they are going be running to their realtors to buy their first home. Over 30 percent of them are unemployed; they are graduating from school with an average of $23,000 in school debt; they are not saving; and their parents can’t help as they are rebuilding their own retirement funds. Much as Gen Y says they want to own a home eventually, it will be years before they can financially.

And third, attitudes to homeownership are changing rapidly among not only Gen Y but among the entire U.S. population. People are reconsidering the advantages of renting, now that the myth that home prices only go up has been solidly debunked. This means you can lose money on a home or be unable to sell it for the amount of the mortgage if you need to move for a new job. The members of Gen Y know it will be years before they are settled with kids, careers, and communities.

Finally, attitudes toward the cul-de-sac suburbs are changing as well. While they remain popular with many, the members of Gen Y consistently say they are looking for walkable urban environments while older Baby Boomers have been moving into urban areas over the past decade.

This adds up to a new design for master planned communities after the recession. To meet the demands of the new market will require smaller, more affordable homes. This does not mean simply shrinking the home designs of the past but redesigning the home – fewer rooms, more open and flexible spaces, exciting new design instead of references to the past. Remember that households with kids are only a quarter of all households, and the fastest growing type of households will once again be singles (especially women) and couples without kids.

This also adds up to more rental housing. This can include small single homes which are rented, perhaps on a rent-to-own program, rental town homes, and multifamily buildings. One exciting new style of apartment building, dubbed the “Big Home” by Mark Humphreys, CEO of Dallas, Tx.-based Humphreys & Partners Architects, L.P., looks for all the world like a large single family home yet contains six or more attractively designed apartments, each with their own entrance and parking.

The final thing to keep in mind is the growing desire for more walkable urban spaces with a mix of housing types, stores, services and even offices. This means no more faux “town centers” but a serious investment in a small, compact downtown, one which can be expanded as the community and the market grow.

In short, master planned communities will come back to meet the demand for new housing once the economy recovers and jobs are back, but in the meantime a new market has emerged and to meet it will require new plans, new designs and new thinking.

John K. McIlwain is the director of the climate, mind behavior program at the Garrison Institute. He was the Senior Resident Fellow/J. Ronald Terwilliger Chair for Housing at the Urban Land Institute (ULI) in Washington, D.C. An author, speaker and former lawyer, McIlwain brings more than 35 years of experience in the fields of housing, housing investment and the development of sustainable housing.
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