Housing Demographics and Meeting Your Buyers' Demands
It'll take planning to meet your changing customers' demands. In this last of a three-part series, Peter Fabris offers insight into what those demands will be.
Demographic analysis makes clear that the next couple of decades will be dramatically different from the previous few for the home building industry. The good news is that home builders have an opportunity to appeal to them as they buy homes in the future.
The greatest source of change will be the aging of the baby boomers and a resulting glut of homes for sale. This could lead to depressed home prices and a drop in demand for new homes, though this impact will vary by region in timing and severity.
"In some parts of the U.S., it has already started to hit," says Dowell Myers, professor with the School of Policy, Planning, and Development at the University of Southern California. "Other parts will be immune until after 2030." In general, the Northeast and Midwest will bear the brunt of the giant baby boomer home sell-off, with some seniors potentially having great difficulty selling their homes. The home market in many Sunbelt states will fare much better as retirees move in and a growing younger population helps fuel the market. In some cases, government policies and
creative methods of development may be able to mitigate the worst impacts of retired baby boomers taking flight from the Northeast and Midwest to warmer climes.
"You can't really stop aging, but you can reduce its impact in different ways," Myers says. One way is for developers to work with local planners to retain seniors. This strategy could include building community centers for senior citizens and making shopping malls more attractive to older folks. Some developers have already taken to constructing condos and apartment complexes adjoining shopping malls that could target the elderly. This new urbanism approach for suburbia would make it easier for seniors to live self-sufficiently by living within walking distance of grocery stores and other amenities.
Another strategy for areas that are losing population is to attract new immigrants, a group that accounts for 40 percent of new housing demand this decade and will account for an even higher percentage next decade. This strategy is somewhat limited, however, as there are only so many immigrants to go around, Myers points out.
"The only thing that works for everybody is to invest in young people," Myers says. Ensuring that all young people can maximize their home-buying potential by giving them the means to achieve a high level of education is the best hope for mitigating the impact of the baby boomer sell-off, he says.
Baby boomers will continue to be a prime market for home builders, particularly in retirement areas. Florida and Arizona, for instance, will be strong boomer markets, while Ohio and upstate New York, for instance, will likely lag, Myers says.
Nationally, a decline in overall demand for new housing construction appears to be inevitable, and this will cause cutbacks and consolidation in the home building industry. Demographic trends are too strong to believe otherwise.
Roughly 12 percent to 15 percent of home sales in recent years have been new construction, but that statistic may not hold up, Myers says. With so many retirees selling their homes, a decline in the percentage of new construction of the total housing market is likely in some areas. Successful builders will have to study market segments more carefully and tailor their offerings to specific groups more finely than they have in the past.
As baby boomers age, most will want to remain in their homes for as long as possible. Many are about to purchase their last home, says Steve Melman, director of economic services for the National Association of Home Builders. "Many are going to say 'as long as we are buying a new home, we might as well get exactly what we need,'" Melman says. Boomers will be looking for more amenities in a smaller footprint.
One attractive feature will be a spacious master bedroom suite. As boomers age, they may
have a grandchild or third-party caregiver move in to aid them when their health declines, Melman says. A large master bedroom suite would allow space for medical equipment and allow aging boomers to have private bathrooms. Universal design principles will attract them; wider doorways for easier wheelchair access and handicapped-accessible bathrooms and kitchens are likely to become more common. Many boomers will also want guest bedrooms to accommodate visiting children and grandchildren.
Boomers have always bucked the trends and norms of previous generations, and this trait is bound to affect the housing industry. "Most people agree that boomers will try to be different," Myers says. "We just don't know in which ways. They are not all going to congregate around golf course communities. Some retirement communities could be entirely focused on nature or shopping. Boomers will not be homogeneous. There are enough of them to drive many different trends."
With a plethora of baby boomer homes going on the market, generations X and Y are likely to purchase more existing homes and fewer new homes than the boomers did. Though this trend will be partly due to basic supply and demand, it also appears to be driven by changing generational attitudes toward home buying.
"Generation X does not buy into the need for having sparkling, fresh homes as much as boomers did," says James Chung, president of Reach Advisors, a marketing strategy and research firm based in New York. Many Generation Xers are particularly turned off by large suburban home developments, the so-called "McMansions," Chung says.
One reason for the McMansion backlash is affordability, as Generation X is typically saddled with more college debt than boomers had at similar ages. Another key reason may be a heightened sense of environmental consciousness. As large homes require homeowners to use more energy than smaller homes of a similar age and design, the McMansions of the 1990s and 2000s are not the greenest homes, which could make them a tougher sell over the next two decades.
The consumer preferences of Generation Y, which is just beginning to enter the home market, have yet to be formed. This generation, like the Xers, faces housing affordability concerns, though, so an aversion to McMansions is likely among them as well.
One key characteristic of Generation X and particularly Generation Y, which is sometimes referred to as the Internet generation, is their embrace of technology for managing many aspects of their lives. These consumers appreciate the convenience of researching products and services online and turn to the Web as their primary medium for finding and assessing homes for purchase. Developers will have to step up their Internet marketing efforts to reach these consumers if they're not doing so already.
It will also be important for home builders to understand the cultural traits of generations X and Y. "Depending on which generation you fall into, you may have certain instincts toward generational differences," says Steven Kleber, president of Kleber & Associates, an Atlanta-based marketing consultant. "Be wary when marketing to certain groups that may differ from your own."
For example, Kleber's research says that many Generation Xers hold the following impressions of baby boomers:
"They do a great job of talking the talk but they don't walk the walk."
And baby boomers hold these impressions of Generation Xers:
"They are rude and lack social skills."
"They're always doing things their own way instead of the prescribed way (our way)."
These attitudes highlight a lingering generation gap. A baby boomer salesperson, for instance,
needs to be aware of any negative prejudices he or she holds toward Generation X and keep them in check when he or she interacts with Xers. R-E-S-P-E-C-T for Women
It was only a few decades ago that a single woman purchasing her own home was a rarity. Any developer today that retains old school condescension toward women home buyers is going to turn off a vital, growing market segment. "The playing field between men and women has leveled considerably," Kleber says. "Today's women, if they so desire, can have it all: career, family, children and economic freedom. Women want to be treated with full respect as knowledgeable home buyers."
Having bilingual or multilingual salespeople may be a necessity for home builders who want to appeal to the growing demographic of new and recent immigrants. "Today's 'linguistically isolated' households can work, shop and live all by communicating in a language other than English," Kleber says. They'll gravitate toward builders that accommodate their linguistic preferences.
Hispanics, the largest ethnic group in the nation, have some unique traits that affect home design. Many either house extended families under one roof or have relatives living nearby, Chung says. They tend to practice communal cooking and eating and prepare larger meals than most other ethnic groups, he says. Thus, how kitchen space is allocated is a key concern. "A kitchen that impresses an Hispanic immigrant is going to be a lot different than one that impresses a native-born American," Chung says.
Asian immigrants have similar tastes in home design to native-born Caucasians. One difference is that many South Asians, particularly, want a spiritual room located near the center of the house, Melman says.
The key is to continue to follow up on research about immigrant and ethnic groups' preferences and tailor your approach appropriately.
A key characteristic that crosses all demographic groups is an increased green consciousness. A consumer focus on environmentally friendly products is widespread and is particularly evident among generations X and Y. The development of greener homes may be a way to drive new home purchases, as homes that save money on utilities and have a reduced carbon footprint become more appealing. Features such as energy efficient lighting, state-of-the-art air exchangers to minimize mold and allergens, non-toxic paints, carpets, and finishes, and sustainable wood products will carry strong cachet.
The key principle for home builders over the next couple of decades is to know thy customers better than you ever have. "So much of home building over the past few decades was builder-driven," Chung says. "In the future, builders that are consumer-driven will be successful."