Boomers are on the move and Millennials are seeing upward mobility, but issues with affordability and housing product persist.
The ways that architects, developers, and operators design projects, attract tenants, manage costs, and measure success are each flexing as cities change and generations make big shifts in living habits. Here are a few trends that will impact real estate projects and sustainability strategies in 2019 and beyond.
- Millennials are moving out of their parents’ houses. The trend of living with the parent peaked in 2016, and now Millennials are moving out, often to multifamily developments. This is good news for operators as homeownership increases, creating vacancy. A strong economy will keep the Millennials in amenity-rich apartment communities. Will they move back in with their parents if the market takes a downturn? They might not be able to, and here’s why:
- Baby Boomers are downsizing.Baby boomers are selling their homes, relocating from suburban family-friendly neighborhoods to urban developments, and embracing density and city life. As renters, this group expects their multifamily communities to address wellness and zen-like opportunities for personal development. They will want enough space to entertain because…
- Millennials are having Babies.Baby boomers – and yes, even some in Generation X – are becoming grandparents as their Millennial kids are starting families of their own. So while Millennials are moving out of their parents’ houses and into multifamily developments, the developments that they want are in secondary and suburban communities where they can afford larger, more affordable space. This means they’ll be looking for mixed-use suburban locations with a bit of urbanism, as well as transit-oriented developments so they can get to work in urban commercial centers. Speaking of jobs…
- Affordability challenges persist.Multifamily developments are being pushed to urban centers where larger complexes make more financial sense. Of the 358,000 multifamily units built in 2017, 187,000 have 50 or more units. Only 27,000 new units have 2-9 units, down from 288,000 in 1973.
In an opinion piece for Bloomberg, columnist Justin Fox attributes this shift to a number of factors, first and foremost the rise of politics in homeowner-dominated suburban areas.
We are seeing tougher entitlements processes in suburban areas, but cities like Seattle are trying to incentivize more small apartment buildings, so we can densify the suburbs and apply workforce housing. This is “affordable” housing for working people that targets essential workers like police, firefighters, teachers, nurses, and service workers. Workforce housing developments are in high demand areas and can be located near employment centers, which are often too expensive a market for these essential workers to choose.
- Secondary markets are hot. Developers are moving out of primary markets and increasing development in secondary markets. There aren’t enough value-add properties left in primary markets, so investors are looking elsewhere, such as Austin, Texas, Phoenix, Kansas City, Mo., and Salt Lake City.
- Multifamily construction is slowing.You’ll see fewer new multifamily developments under construction. But while the vacancies are rising, they are lower than historical averages and the multifamily market is still quite strong.
- Sustainability implications ahead.From a sustainability standpoint, these trends add up to a demand for transit-oriented development and new algorithms for parking; wellness and sustainability features, validated by third-party certifications; amenities that compete with homeownership; and increased pressure to include affordable housing in each development. Social connectivity is on the amenity list for Millennials, and wellness needs are on the list for baby boomers.