What has changed in the master-planned community development industry and what has stayed the same?
Developers have learned much during the industry’s past five decades: that it is a cyclical business, that the market becomes overheated in every cycle, that prices soar and peaks are reached, that demand and prices drop dramatically, and that the tyranny of the urgent obsesses the industry, and it suffers for years. During a market run-up, the true drivers of demand are disguised as the industry produces and sells to meet demand. Then, in the downturn, it become paralyzed and the recovery takes a long time.
Yet, at the bottom of each cycle, there are those who identify niche opportunities, imagine concepts, and innovate with communities and housing products that get people back into the market. As the industry emerges from the recent recession—and works to understand the drivers of demand and imagine what people want, can afford, and will buy and rent—what will planned communities look like in the future?
The first step in envisioning future communities is to identify how households will change in this decade and what it means for master-planned communities in 2020. For this forward look, I analyzed the September 2010 working paper “Updated 2010–2020 Household and New Home Demand Projection” by the Joint Center for Housing Studies (JCHS) at Harvard University. There will be over 10 million more households occupied by people age 55 to 74 at the end of this decade than there are now. Together, the two ten-year age groups from 25 to 44 are adding a total of only 1.9 million households in the next ten years, and there will be 2.3 million fewer households with people in the age group 45 to 54.
As generation Y—those age 14 to 31 in 2011 and 23 to 40 in 2020—grows older and forms new households, demand for family housing will increase. The question to consider is whether the industry should build communities for this market, whether these households will be absorbed into the single-family detached housing located in the planned communities built over the past five decades, or whether they will choose to live in infill locations closer to amenities and services. The dramatic change to acknowledge in this decade is the loss of those nearly 2.3 million households age 45 to 54—the age at which people typically buy move-up housing and second homes.
An examination of the rise in the number of older households, plus the increase in single-person households and couples without children—which combined will grow by almost 9.5 million by the end of the decade—makes it is easy to see that demand for planned communities in the United States will be different than that previously experienced.
U.S. household growth by race/ethnicity is another guide to how communities should be planned in the future, with minorities projected to account for 70 percent of net household growth between 2010 and 2020.
What do these changes mean for the planning, design, development, and marketing of planned communities in the future? First, the industry must appeal to all age groups, household types, and racial/ethnic groups because communities will be more diverse and intergenerational. The definition of planned communities must therefore expand to include not only new developments with a variety of residential housing types, and the services and amenities to support them, but also existing communities making the transition to serve the needs of the changing population in existing infill and edge locations.
During the “Master-Planned Communities 2020: What Does the Future Look Like?” panel at the ULI Fall Meeting in October, Perry Reader, president of Crosland in Florida, said the original cornerstones of Celebration—a sense of place and community (both social design and desirable gathering places), education and lifelong learning, health and wellness, and technology—are a great place to start in the reinvention of master-planned communities for 2020. Those cornerstones are as appropriate today as they were in 1996 when the industry looked out 15 years to 2010. Since that time, developers have learned the importance of the following:
- Enrolling and partnering with the public sector, the existing community, and environmentalists in the planning process.
- Understanding how future markets will differ from those of today and how people will want—as well as need—to live.
- Being environmentally sensitive and adopting the principles of sustainable development and green building, as well as the methods to implement them.
- Identifying future niche markets and aligning residential products, amenities, and services to address what people want and need as they enter different life stages with changed lifestyles.
- Considering the entire existing community as a potential support system to serve small-scale projects that cannot provide needed amenities and services as a part of new development.
- Planning neighborhoods based on the principles of neighborhood crafting, in which aesthetically pleasing places are created in consideration of homes and commercial space being part of a whole rather than individual structures.
- Designing more compact and affordable homes that integrate seamlessly into neighborhood and village fabrics, with plan interiors that expand to incorporate privacy and outdoor living spaces.
- Creating walkable community environments that feature safety, connectivity, security, public realms, and amenities that are shared by all residents.
- Structuring a diversified product program that addresses consumer segmentation so a wide variety of markets are served.
- Delivering on all promises made through marketing and sales.
- Having a compelling vision and big idea that answers the developer’s question, what do we want to create?—a vision that inspires everyone involved to create places that enrich and enhance all who live, work, and play there.
The panel drew several conclusions during its session on the future of the market, each of which needs to be addressed by the industry as follows:
- There will be more renters—both of single-family homes and other kinds of dwelling units—so developers need to figure out how to take advantage of the shift.
- Niche marketing will increase dramatically. Numerous niches exist that the industry has not even begun to understand, and each will have its own nuances. Developers need to consider how they can make money by satisfying one or several of these niches. For example, master-planned communities have not done a good job of dealing with the aging population and how to design for it.
- Ethnic diversity will increase, which will make the industry’s current understanding of this niche seem trivial. People in the industry think they understand “the Asian market” or “the Hispanic market,” but, in fact, the Asian market is 50 different markets, as is the Hispanic market. Ten years from now, the United States will be even more of a melting pot. Developers need to consider the different needs of the first, the second, and the third generation of immigrants when developing product.
- Fewer people will be commuting by car to work five days a week. Developers need to think about how this is going to affect master-planned communities, houses, apartments, and offices.
- The women’s market will require particular attention. It is widely acknowledged that women make the decisions about where they and their families live. And the power they hold in the market is going to grow as their rising wages increase their purchasing power.
- There will be more of a merger between product and services, meaning the merger of a place to live and facilities that provide desired services, be it health care, education, technology, or a sense of community. Developers need to determine which services to provide, how to merge them with the housing product itself, and how to turn that combination into an income stream long term.
- The amount of mixed-use space in master-planned communities will increase because it will boost absorption in both large and small planned communities, allowing the developer to exit sooner. Mixed uses also help create the cool places where so many people want to live. Some mixed use has the potential for value creation, allowing developers to get more money from the pieces in a planned community. For example, people will pay more for the right kind of housing if a restaurant is next door, or to live in a housing project if a daycare center and a school are nearby.
- There will be more global partners and global players in the U.S. master-planned community market. Historically, there have been few—mainly homebuilders and developers from the U.K. or Canada. However, developers need to consider what the impact will be in ten years when the U.S. market has more global players.
- There will be more business model changes as developers work with their homebuilder partners, apartment partners, not-for-profits, churches, businesses, and other partners. The relationships will change and new ways to finance projects will be found. Financing will be a problem, so new relationships with builders and others are going to be important.
- The way planned communities are created is going to change, with developers getting customers, cities, and communities engaged in the development process a lot earlier.
- The industry—which in a lot of ways is prehistoric and dinosaur-like—is going to mature, with developers becoming more sophisticated, and customers benefiting because of it.
- The environment will become more and more important. In 2020, in a world where gasoline may cost $10 per gallon, changes are coming in how communities are created, how they are planned, and how they handle energy use.
- Severe water shortages are on their way, so dramatic changes are coming in the way water is used in communities ten years from now. Developers should get ahead of the curve now to try to understand the implications of this change.
- The shift to a 24/7 world has implications for a master-planned community where people are active all day and night. Amenities will need to open around the clock, facilities will need to be lighted at night, and safety and security will have to be provided.
- More people will be moving back to the cities because that is where the jobs are, but some companies will be moving away from cities in order to expand.
- The industry is going to be more socially responsible, both for the sake of profits and because it is the right thing to do.
- Planned communities will be denser, becoming taller and taking different shapes and sizes. Consumer segmentation by community developers and homebuilders in planned communities will increase. Segmentation by builders will also increase, with more large, public, national builders entering the market, as well as small and regional builders that can do niche products.
- There will be more branded communities as customers look for trust and reliability. Life stage marketing will increase as developers better understand how to own the relationship with the customer. Because developers work hard to obtain customers, once people move into communities it only makes sense for developers to know what they are going to want five, ten, or 20 years down the road.
- Developers will have to build more flexibility into communities because when 2020 arrives, they will need to be thinking about 2030 and 2040. Developers must ask how their buildings can change over years and decades to have a longer lifespan for customers.
These are exciting times for everyone in the master-planned community business. The real estate industry needs to take these new ideas and look forward. But it also needs to look backward to some of the best planned communities that were built in this country before the Great Depression of the 1930s. Great cities existed 90 to 120 years ago to look back on and learn from as the industry moves forward.
