The February numbers report for the homebuilding industry couldn’t have been more grim: New-home construction in the United States fell to a pace that will translate to about 250,000 homes for all of 2011, which would be the fewest built since the Commerce Department began keeping track in 1963.
If homebuilding isn’t dead, it certainly has some time to think about what it would look like when it revives, perhaps from 2013 to 2015. That’s according to John McIlwain, a senior fellow at the Urban Land Institute in Washington, which studies trends in housing and development.
McIlwain regularly talks with builders and developers across the country. He expects that when homebuilding once again is flourishing, the big master-planned subdivision that was the face of residential construction for so long won’t have disappeared, but it will look different and will be restyled to appeal to a broader array of buyers, especially those who have little in common with the old notion of “a family equals two parents with two kids.”
He talked about what he sees ahead:
Q. Is the big master-planned community dead?
A. It’s not dead, but it depends on where you are in this country. There are very, very few subdivisions being started, because, by and large, there’s no financing for land development. Prices have come down, but it’s pretty hard for developers to go out and borrow to buy land.
Some developers are taking new approaches to building out their existing communities. They’re selling sections of land to builders in smaller chunks. Instead of saying, why don’t you take 500 lots, as they once did, they’re saying, take 50 lots and target them for one particular market, such as empty nesters.
Q. Who are they marketing these chunks to?
A. These builders and developers are beginning to think more in terms of life cycle than in terms of first-time buyer or move-up buyer, etc.
One group is empty nesters in their late 50s and early 60s who are going to continue to work. They don’t want a big home, but one that’s open and wired and has high ceilings, which helps to visually compensate for the smaller spaces.
Older baby boomers, 56 to 65, haven’t really started to come to grips with aging, but they will in the next five years. They’re going to want a one-story home or an elevator for a two-story.
And homebuyers today are more diverse than they have been. They should consider marketing to single women, some with kids and some without. Or to two women, offering them two equal master bedrooms.
There’s going to be a need for multigenerational spaces that can accommodate grandparents, adult children and young grandchildren. This is going to be particularly in demand where there is heavy Latino and Asian buying.
Q. What about the houses themselves? Do you buy into the notion that we’re over the McMansion phase and desirous of something compact?
A. I think you’re right to be skeptical of some kind of fundamental cultural shift for Americans. For post-World War II Americans, it was decades of “I want to express my success with bigger cars, bigger TVs and bigger homes.”
But the median size of new homes already is steady or dropping. Smaller lots already have become acceptable because people don’t have time to take care of them.
With younger adults who may be buying in a few years, longer-term, this generation isn’t going to be able to afford bigger, bigger, bigger. Financial conservatism is replacing the go-for-broke house. These buyers will be willing to trade the over-the-top features that used to be put in just for resale value in exchange for flexible, open spaces that are energy-efficient. And they do want to be able to work at home, with wired and wireless connectivity.
Q. You’ve urged developers to include more rental properties among for-sale homes. Do you see increasing rental demand?
A. Developers are definitely looking at it. The question for multifamily units is, what kind of rental? For two roommates with separate beds and baths, or for a couple without kids; or three-bedroom units, so they can stay there if they have a child? These are things that are being thought through.
Obviously, with the foreclosure situation, individual people are buying up single-family homes and renting them out. That’s already happened. I haven’t seen builders building single-family homes yet and then deliberately renting them out, but it’s a logical conclusion.
If you see what has happened to the homeownership rate, you know that rental is what’s happening. Last year, homeownership was about 66 percent, and we’ve seen six years of steady decline. In another five years, I think we’re going to get it down to 64 or 62 percent. That’s a shift of hundreds of thousands of new renters, or at least hundreds of thousands who aren’t in the homebuying market each year.
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