Watch John McIlwain’s videos in which he discusses what seniors want in housing as well as what Gen Yers want.

Workforce housing development in the post-recession economy will be influenced by two population groups at opposite ends of the age spectrum: generation Y (Gen Y) and people who are 65 and older, according to John McIlwain, ULI senior resident fellow for housing.

At a recent workforce housing forum hosted in Orlando, Florida, by the ULI Terwilliger Center for Workforce Housing, McIlwain offered insights into some transitions occurring within the housing industry. In a presentation to ULI district council staff representatives, he cited current “game-changers” that are reshaping the U.S. housing market for consumers of all ages:

  • The continued decline of home prices nationally—the Standard & Poor’s Case-Shiller 2010 national price of $130,380 was down by 4.1 percent from 2009, and is expected by McIlwain to fall 5 percent in 2011;
  • The ongoing foreclosure crisis—more than 2 million foreclosures occurred last year and an equally high volume is expected for this year;
  • Still-high unemployment—the February 2011 rate was 8.9 percent and, while beginning to fall slowly, it will take years for all who want work to find it;
  • Approximately 25 percent of the nation’s current homeowners have mortgages that are “underwater”—meaning their home loans exceed the value of their homes;
  • A drop in the national homeownership rate, from the 2004 economic-boom peak of 69 percent to the current level of 66.58 percent;
  • Looming changes in the federal housing finance system that will likely raise the cost of home financing; and
  • An eventual increase in mortgage interest rates back to the long-term norm of 7 to 8 percent.

According to McIlwain, each of these factors suggests a rising demand for more affordable housing at a time when the behavior of different demographic groups is causing a fundamental change in housing needs. He described three sets of seniors: 1) the trendsetters, who, having just turned 65, are the leading wave of the baby boomers, are still active and still working, and who have broken the mold in each decade of their lives; 2) transitional seniors, aged 66 to 80, a group split into those still working and those retired (“We haven’t quite figured out what they’ll do in terms of housing”); and 3) traditional seniors, aged 80-plus, who are living longer and tending to age in place in homes and suburbs better suited to young families.

Because many of the traditional seniors will outlive their retirement funds, they have perhaps the most pressing need for affordable housing of all those in the senior categories, McIlwain said. However, regardless of the varying lifestyle choices of younger and older seniors, the housing best suited to all is denser, mixed-use, mixed-income development that minimizes the need to drive.

At the other end of the housing spectrum is Gen Y, aged 18 to 32, and, at 80 million strong, is the largest generation in history, surpassing the baby boomers by more than 5 million. Although this group has reached the prime stage in their lives for forming new households, household formation is about one-fourth the rate of just three years ago, suggesting that the recession has kept many Gen Yers living at home with their parents, McIlwain said. Gen Y, he noted, is a generation with high aspirations (a Gen Y survey conducted last year by ULI found that many expect to own homes within a decade) that may be curbed by economic realities. Given the experiences that many of their parents have had with the housing collapse, most Gen Yers probably should not buy “unless they are settled and know they will not move for seven to ten years,” McIlwain said.

Income constraints among even the most educated in this group point to a strong demand for affordable housing near employment centers in urban areas, he noted. “They are bright, they drive innovation in business and technology, and they create value-added jobs. They also represent the newest workforce housing challenge,” McIlwain said.

The challenge for ULI—particularly its district councils—is “laying the groundwork for each metropolitan region to have its best competitive chance in the new economy,” he concluded. “This means helping to create communities that attract and keep the most educated and creative of Gen Y, while providing a full spectrum of housing for people of all incomes, ages, and stages of life.”

A survey of the 16 district council representatives who attended the forum found that home foreclosures ranked as the housing issue of most immediate concern. A close second: the lack of affordable workforce housing in neighborhoods where it is needed—close to employment centers and transit connections. Nearly all the respondents predicted a sharp increase in demand for multifamily rental units.

Minimal interest in workforce housing, on the part of both public officials and private employers, was cited as problematic. The most effective way to spark interest, participants said, is to position workforce housing as an economic development catalyst.
The consensus among the district council representatives at the event: Workforce housing is one of the key contributors to a competitive community; it should not be addressed in isolation, but rather as part of an overall plan to make a community more affordable and more livable.