My column for the January 2012 issue of Builder & Developer magazine is now posted online.
For this issue, entitled "Households Re-Think the Meaning of Home" I reviewed the major trends discussed at the 2011 ULI Fall Meeting here in Los Angeles as well as at the Building Industry Show in Long Beach.
An excerpt:
At the 2011 ULI Fall Meeting in Los Angeles, a new publication entitled “What’s Next: Real Estate in the New Economy” summarizes what builders and developers can expect in the years ahead through 2020. Due to a combination of increasing globalization, changing demographics and evolving technologies, the correct mix of strategic analysis and advice has never been more important.
In the short term, one thing is becoming clear: the smorgasbord of low-hanging fruit which largely powered the home building industry’s success since the end of World War II is now gone. But that’s not necessarily a bad thing. In its place is emerging a collection of specific opportunities targeting value-conscious Baby Boomers, hyper-connected Gen Y members, immigrants often in need of multi-generational housing and lifelong renters -- some of whom need affordable housing and others who still crave those services and amenities commonly found in luxury condominium buildings.
However, these groups will still demand some common traits related to design and function. One major trend discussed at the 2011 Building Industry Show in Southern California is casual living, which is now evident in all facets of American life and has been building for the last two decades. Casual living means combining room flexibility into ‘great rooms’ so individual households can make it their own with the fewest structural impediments as possible. At the same time, today’s households don’t want to sacrifice style and design, so matching supply to demand at a competitive price will be critical.
It also means providing a clear relationship between indoor and outdoor spaces, so that even downsizing Boomers or transit-oriented Gen Yers can host family and friends in a yard or on a patio or balcony. In addition, given the continued rise of telecommuting marching in lockstep with improving technology, most buyers want to feel just as connected with the outside world whether they’re living in a downtown loft or a multi-generational home in a far-flung suburb. And, although today’s buyers and renters won’t necessarily pay more for sustainable living, they’re much more likely to opt for a green home if the cost is the same, thus helping both absorption and occupancy levels.
The demographic changes impacting the industry will continue to accelerate in the years ahead, which will mean building for single-person households (expected to account for 27% of the total by 2020), ‘minority majority’ Asian, Hispanic and African American communities in many urban areas, extended employment years for Baby Boomers expected to live longer lives than ever, and small groups such as families, friends and roommates opting to cohabitate in large homes as opposed to living alone.
Layered on top of these demographic changes will be the realities of living a balanced life. With costs for transportation in the form of fuel, time and tolls continuing to rise, households are already beginning to factor in the total cost of commuting and maintaining a home into their total monthly budget. However, since infill urban locations are by nature limited in scope, look for more mixed-use corridors to crop up around suburban nodes with freeway interchanges and transit stops as the center piece.
Still, beyond the statistics lie the real reasons people choose the communities in which they live, and some of these may surprise. According to the third annual Knight Soul of the Community survey conducted by Gallup, there are three main qualities which attach people to a place: social offerings in the form of venues and places to meet, openness to diversity and newcomers, and aesthetics in both physical beauty and green spaces. Perhaps Confucius had it right all along when he predicted, “The strength of a nation derives from the integrity of the home.”
As the building industry continues to wait for a sustained rebound which stubbornly refuses to appear, it’s easy to grow frustrated with economists and prognosticators who seem to constantly update their forecasts. So what’s going on?
One reason that it’s hard to get a handle on the economy is because the federal government has pursued various policies which have simply postponed the inevitable consequences of the past. In times of great economic duress, this makes sense, as too many negative hits at once can send an economy into a tailspin leading to a depression. But by spreading out these hits over time so the economy can adjust, any recovery is also muted.
Another reason it’s been difficult to gauge the timing of a rebound is that the bust in housing demand and prices hasn’t been uniform across the country: while Arizona, Florida and Nevada continue to suffer disproportionately, places like Texas and Washington, D.C. are on the mend. In addition, when real estate bubbles pop, it’s not like they re-inflate immediately – the market tends to bob along the bottom for two or three years before sustained demand is possible. An even with mortgage rates now at generational lows and home price affordability far higher than during the boom years, the demand for housing now simply needs ample time to recharge its batteries.
In the meantime, this recharge is continuing unabated, only instead of living in their own homes, potential new households are doubling up with roommates and with family members while waiting for job growth to return. In general, between 1960 and 2005, the United States has averaged 1.2 million net new households per year. In some years builders have certainly over-built relative to demand, but in many others years (such as during recessions), they can’t build enough homes.
According to a recent study conducted by the NAHB, although the nation’s builders certainly over-built single-family homes from 2003 through 2005, the cumulative surplus relative to population growth was completely worked off by the end of 2007. That’s not to say we still don’t have a huge over-supply relative to buyers’ ability to buy or qualify for mortgage loans – it just means that based on historical precedent and average household sizes, the nation is technically under-housed.
In fact, between the end of 2007 and 2009, the sharp declines in new building led to a projected deficit of nearly 2.2 million units. By the end of this year, that deficit will have reached nearly 3.3 million units. In other words, as the foreclosure pipeline is eventually addressed – and it must be in order to clear the inventory of homes in default -- this country will face a tremendous pent-up demand for new housing across the entire income spectrum.
And yet, much like the nascent recovery, this pent-up demand differs from state to state. A similar analysis conducted by the NAHB for each state showed some of the states with the most foreclosures – such as Arizona, Florida, Nevada and California – have still racked up single-family housing deficits relative to population growth ranging from 50,000 to 145,000 homes.
At the recent Building Industry Show in Southern California, the energy this year was much different than in 2009. Not only was it more hopeful, but I heard stories of multiple deals getting done in order to start prepping for the rebound. While it was still gallows humor from land brokers and lenders opining on panels, the general consensus was that 2010 would go down in history as one of those years in which the industry’s survivors hang on because they know that the rebound – when it comes – will be formidable.
Today in the mail I received the brochure for the 2009 edition of the "Building Industry Show" produced by the Building Industry Association of Southern California. It will be held on November 19th and 20th (with some pre-show activities on the 18th) at the Long Beach Convention Center.
There are some new features at this year's show, including the following:
Town Square - a new venue, right on the show floor, boasting its own line-up of education, networking and business prospects. I will be speaking at the Town Square as well as moderating the panel "Design-Plan-Build" on Thursday, November 19th from 1:30-3pm.
BIS Roundtable - engage in lively conversations that are relevant to your business, share ideas and brainstorm solutions to today's most pressing issues; topics include building, development/high density, green, land acquisition/finance, sales & marketing/social media.
"REO Expo" - BIS has partnered with REOMAC and other REO-related groups to offer a "show within a show" to create new partnerships, collaborate with those working in the REO market, and to diversify existing businesses. Also included in the show will be an REO track of educational seminars.
I will be speaking on Friday, November 20th from 9-10:30am on "Residential, Commercial & REO Forecasts."
Regional Realtor Palooza - a one-stop co-op where builders and real estate agents can network to sell homes including co-op programs, builder financing & incentives and selling standing inventory (Friday 8-9am).
REO Property Auction - the first live auction BIS has ever held on the show floor of foreclosed homes for those looking to invest (Thursday and Friday from 4-6pm).
Center Stage - sponsored by Wells Fargo Home Mortgage, real estate coach Mike Ferry will discuss how new home agents and co-op brokers can work together. In addition, a series of workshops and networking events will be offered.
For more information and to register, visit www.buildingindustry show.com. See you there!
If you wanted to attend this year's BIS (Building Industry Show) in Long Beach on November 13th and 14th but money's too tight, fear not. The BIA of Southern California is offering a free pass to building industry associates. Click here for details and to register.
