The national homeownership rate fell to 66.4 percent at the end of the first quarter—the lowest figure in 13 years—down from 67.2 percent a year earlier.
And that flight from ownership has had a big effect on the multifamily industry’s improving fundamentals. Unlike in previous upturns, the apartment sector’s recovery isn’t being driven by robust job creation or a rapidly improving economy. Where there has been new household formation, it’s been lopsided in terms of how much is directed toward rental housing.
Many in the apartment industry are now wondering if that shift away from ownership is structural (permanent) or cyclical (temporary)?
A Behavioral Shift?
One popular belief—echoed throughout countless multifamily conferences—is that the shift is largely behavioral, that the bloom is off of the rose of homeownership for many members of Generation Y. But this is likely a mistaken assumption.
“There’s no evidence at this point to support the definitive thesis that young American households are permanently biased away from homeownership,” says Sam Chandan, global chief economist for New York-based market research firm Real Capital Analytics. “History suggests that that bias is largely cyclical.”
The desirability of homeownership changes as the housing market changes, according to Chandan. It’s a function of people’s expectations about the value proposition of owning a home. And since home values aren’t expected to rise in the near term, the bias toward renting is clear.
Indeed, ownership is no longer viewed as a can’t-lose investment strategy. “That’s different than what we’ve previously seen in most coastal markets,” says Greg Willet, vice president of research and analysis at Carrollton, Texas-based MPF research. “But it’s actually not anything new for large parts of the country, like the Midwest. There, the premium to buy versus rent traditionally has been fairly small, and home appreciation traditionally has been pretty modest.”
One reason that home sales have been slow to bounce back is purely demographic, Willet suggests. “We simply don’t have very many people at the typical age for first-time purchase right now,” Willet says. “Those in their early- to mid-30s are at the tail-end of the comparatively small Gen X group.”
But once the oldest of the much bigger Gen Y group starts hitting their early to mid-30s in a few years, it wouldn’t be surprising for home sales to rise again. It may take longer since more people are marrying and having children later in life. And many budding careers of Gen Yers have been stalled by the economy, so it may take them longer to save up for a downpayment. “But it still seems like a pretty reasonable assumption that Gen Y households at some point will turn into their parents, just like every previous generation has,” Willet says.
A recent poll on Gen Y’s attitudes toward housing, conducted for the Urban Land Institute, sheds light on this issue. The survey polled 1,241 people aged between 15 and 32 and found that 35 percent already owned a home, and of those that didn’t, 90 percent envision becoming a homeowner.
THE TRUTH- The major factor in lower home ownership is a radical increase in the down payment now required to purchase a home.Let’s create a story of you and your spouse that best illustrate why this is true.
We start in 2006 when you two saw a $400,000 home that you both think is heaven on earth. Under home financing instituted under President Franklin Roosevelt and continued for the next 75 years, the equity required to,purchase this dream house was $20,000. Great- but you two have only saved $12,000 for this purchase . You did not buy this dream house in 2006, but in 2011 the owners ,who did purchase your dream house, tell you that they are forced to sell their home. Your savings have now grown to $25,000. When these owners purchased their home, they also purchased an additional $60,000 of upgrades for this home. Their total investment is $460,000. After involved negotiations where you talked about current market conditions, the owners agreed to sell this house without a broker for $350,000 . You and your spouse are elated, together you two celebrate with a bottle of champagne. The next day you visit your friendly banker. You tell the banker that previously this bank had offered us a loan of $380,000 for the purchase of this house. That since then the new owners had bought $60,000 of upgrades, You then showed the banker the signed purchase contract for $350,000 for a $460,000 investment. THIS WAS 66% of what the owner had invested. Since this Bank had previously offered a loan for $380,000 on this house, getting a loan for $325,000 should not be a problem. The banker smiles and says your bank will now loan $280,000 on this same house.. You and your spouse are stunned, this is $100,000 less than the earlier quote on the same house. IN ADDITION, YOUR DOWN PAYMENT WENT FROM $20,000 to $70,000.
You are now still living in your apartment along with thousands of others who do not have the cash for this new required increased down payment for their dream house. Strange result, the banks were bailed out, but younger AMERICANS WHO HAD NOTHING TO DO WITH THE CAUSES OF THE RECESSION can not now purchase their home. Instead they have rental receipts.
Do not despair- there are solutions to this problem. Look at typical room sizes and house sizes in England and other European countries. They are much smaller than the average American house size. In 1950, the average size of a new American home was 900 square feet(sf). This grew to 1,400 sf in 1970 and by 2007 the average size was 2,520. Each bedroom had it’s own bathroom, there were elaborate formal living rooms and dining brooms. During the past 50 years, when averaged size new homes homes have tripled in size, at the same time, the size of the family has declined dramatically. Today, many potential buyers say that want a different lifestyle. They see that their parents hardly ever used either their formal living room and dining room. That most folks gathered in and near the kitchen for parties. They talk about a great rooms, energy efficiency, and being close to entertainment and work.
A few home builder have gotten this message from their targeted markets of home buyer. The leader is Shea Homes came up with a new home design called Shape.; A model I saw was 1,458 sf with a great room, three bedrooms and two baths. a two car garage and a enclosed porch- this home s selling for the low $200,000′s in Northern California. see http://www.sheaspaces.com/idea.cfm
D.R. Horton broke ground late last month on Division 43, a Southeast Portland condo development that introduces one of Horton’s most innovative new urban infill products to a national marketplace with a surfeit of exurban housing and a dire undersupply of affordable urban options–micro homes, a concept common in Asia, but rare here.
Think of Shea Spaces, only smaller, attached quadplex, one- and two-story plans, ranging from 364 square feet one bedroom,1 bath, to a 687 square feet for a two-bedroom, one and-a-half bath “home-lets.” Perhaps one of the reasons Shea Spaces comes to mind, Woodley Architecture Group, which designed Shea’s highly lauded single-family breakthrough Spaces brand, was called in by D.R. Horton to design the Division 43 homes.
The development is billed as a “neighborhood within a neighborhood,” aimed at consumers who embrace a car-free lifestyle and like the notion of tending a community garden in partnership with their neighbors. The entirety of Division 43, so named for its location at the corner of S.E. Division St. and 43rd, will be built on a 15,000 square-foot lot.
With price points in the neighborhood of $100,000 for the smallest units, the homes are designed to make eco-friendly building affordable.
And ranging in size from 364 square-feet for a 1 bedroom, 1 bath to 687 square-feet for 2 bedroom 1.5 bath , they earn their micro moniker. Each unit will include built-in storage throughout, efficient floor designs and private outside space. Murphy beds, which fold up into a cabinet, will also be on offer to buyers. The community will comprise three single-family homes, three duplexes and five four-plexes.
This is 85 units per acre. The average US lot size is 13,000 sf. This yields 3.35 units per acre.
This is close in housing that does not provide parking for a car BUT for a bicycle.
Further these smaller houses are very energy efficient- mandating very low utility bills.
hat’s exciting about Division 43–it’s 29 units … on one-third of an acre.
Density is the new black; it’s the million feet of square footage of the middle part of last decade. Twenty-nine stick-built units on one-third of an acre is huge, huge enough to be “the next big thing.”
Why? Think of all the distressed urban and inner-ring real estate, where neighborhood eyesore buildings deteriorate out loud, bringing the environs down with them.
Think of the French pied a terre, the city digs people stay in for a night or three during a work week, or a downtown weekend of culture, restaurants, and fun. Think of hospital staff, doctors, and other health care workers who are working on-call shifts night and day, and would like nothing more than their own place to go back to and restore a bit for the next leg of a shift.
Think of the Generation Y’er who isn’t ready to give up urban living, doesn’t have a lot of material things, and wants to own his or her or their place rather than rent it.
The demographics of appeal are inclusive here:
- Suburban professionals who want the downtown place as a secondary home away from home
- Baby boomers who’re ready to downsize and gravitate out of the exurbs into the urban life
- Workforce housing with proximity to hospitals and other places
- Young adults who want a viable, affordable alternative to renting an apartment
Division 43 is the start of something different, partly because, if it’s spec’d and executed right, and if the building cycle time is managed, this 14-by-26 foot module can be a model of home building efficiency, with a template of components that practically rival manufactured housing in their consistency.
What’s also different about the design approach here is that it goes for a signature look on the exterior elevations, taking an almost found-materials concept and turning it into a sustainable multi-surface, chic effect one is tempted to christen “neo-homeless,” which evidently knows its audience in Portland.
This project reportedly has gotten “reservations” for about half the units in only a few weeks time, and has not begun to be priced or marketed, since several of the interior and manufactured product specifications are still being bid out.
It’s hard not to think of this, however, as an idea who’s moment has come, one that, if it did nothing else, changes the calculus of the buy versus rent assessment.
Let’s come back to now, 2011, where the first half of the year is almost gone, and the most positive spin we’ve heard about this year recently is, “it’s not as bad as it looks,” according to the CEO of one of the 10 largest home building companies in the nation.
Appearances are that it’s pretty bad. The NAHB/Wells Fargo Housing Market Index reflected that “builder confidence in the market for newly built, single-family homes held unchanged at the low level of 16 in May,” a level it’s occupied for six of the past seven months. Calculated Risk’s Bill McBride throws a little salt in the wound, “Builders are still depressed, and the HMI has been below 25 for forty-seven consecutive months – almost 4 years.”
What we see as likely is that, whereas the front half of the year has been an equalizer, a leveler, the back half is likely to play out as a differentiator among both public and private home builders whose strategy and tactics better prepared them for the kind of headwinds the current market is showing. We’ll see some programs move from “muddling along” to making sense, and others continue to tread water. Inaction is still a mistake.
With so many other industry sectors making meek but steady strides into recovery, it’s a matter of time before new-home construction gets the benefit and accelerates growth across the board.
But this move, Division 43, is a potential game changer. From an operational perspective, this new product is akin to KB Home’s Open Series and Shea Homes’ Spaces, only re-constituted 1) to go where many competitors are not prepared to do battle right now (in the inner ring and urban block arena); 2) to bring affordable, sustainable, and walkable into reality; and 3) to compete not just against foreclosure sales but against renting, literally in multifamily’s backyard.
An interesting web site about tiny houses is http://www.tumbleweedhouses.com/
Japan and micro homes
The Japanese have long endured crowded cities and scarce living space, with homes so humble a scornful European official once branded them rabbit hutches.
But in recent years, Japanese architects have turned necessity into virtue, vying to design unorthodox and visually stunning houses on remarkably narrow pieces of land. In the process, they are also redefining the rules of home design.
Few Americans would consider a parking-space-sized lot as an adequate site to build a house. But in Japan, homes are rising on odd parcels of land, some as tiny as 300 square feet.
Yet the term “house” doesn’t really do justice to these eye-catching architectural gems, fashioned from a high-tech palette of materials like glittering glass cubes, fiber reinforced plastic and super-thin membranes of steel.
More With Less
The need to do more with less space has sparked a boom in house designs that are as playful and witty as they are livable. One of Japan’s leading designers of kyosho jutaku, or ultra-small homes, is Tokyo architect Yasuhiro Yamashita. ”If you tried to build a normal house on a super-small plot of land, it would end up being really cramped. So in order to make the house as roomy as possible, we have to think up new structures and assembly,” Yamashita says.
Ultra-small homes conserve space by dumping conventional elements like entranceways, hallways, inner walls and closets.
Windows, in a variety of shapes and sizes, are scattered across a wall, or concealed near the base. A bathroom is separated by just a curtain. Furniture can be folded into the wall, allowing a single room to serve multiple purposes.
Designers indulge in fantasy, like asymmetrical walls, cantilevered floors, or cover their houses in a translucent skin, in order to exploit all available natural light.
Yamashita built a long, skinny, cathedral-like futuristic home on a sliver of land just 40-feet wide, and named it “Lucky Drops.”
“‘Lucky Drops’ was built on an extremely long and narrow space. So light could enter only from the ceiling,” Yamashita says, speaking in Japanese. “All the light comes in from the top. So the whole house becomes like a Japanese paper lantern.”
The boom in quirky small homes was fueled by new design and materials technology, which have slashed the price of a custom-built home by as much as two-thirds, making these homes affordable for singles and middle-class couples.
Minoru and Aki Ota, a couple in their 30s, reside in a home that sits on fewer than 500 square feet. The walls, floors and even the kitchen table are made entirely of precast concrete.
“We weren’t interested in a big house in the suburbs. We were happy to have a comfy place downtown. It’s not that we wanted to live in a micro-house, but it’s turned out to be plenty of room for two and convenient,” Minoru Ota says.
The home features narrow windows at ground level, strategically placed to reveal bits of scenery, and flood the house with light.
Washing dishes at the counter — it’s also made of concrete — Aki Ota says the house has proved warmer than they expected, but the novelty hasn’t worn off four years into their residence. She says it’s like living in an art museum.
CHALLENGE – Many designers are at home wondering why they wanted to be a designer. Work is non-existent.
Here is your chance- design a new living unit. I have been trying for many years to design living areas where each room has more than one use. – like a studio apartment with a murphy bed that is a bedroom at night and a living room by day and evening.
A great designer, Arnold Kronstadt, pointed out to me many years ago how built in furniture was a huge space saver. This will save wasted sf while still have the room act as well as or better than before the sf was reduced.
A design that makes me sick to my stomach is back to back apartments. They are like caves, little light , and no natural circulation of air. We welcomed their competition with our through units that had natural light and great natural air circulation. In the near future, natural light and air circulation will be demanded by consumers.
There are many great designers who are unrecognized . We are entering a new residential design area. Gone will be the designs to show how rich you are by showing how much money you can waste. Sustainability is here to stay. Wasting of resources is conduct to be abhorred. Space and resources must be saved.
The Germans and Scandinavians are the leaders in using alternative sources of energy. They have created tightly insulated homes combined with great air circulation- that reduces the cost of heating and cooling by as much as 90%.
Take advantage of this time of change!!!!
