BACK TO THE FUTURE FOR THE HOMEBUILDING INDUSTRY

1968 democratic convention

Many of the pundits in our industry are suggesting that there has recently been a radical change in the nature of our business.  I was a child of the 60’s and I understand the concept of “radical” change.  I marched for peace and for civil rights.  I was at Grant Park during the 1968 Democratic Convention. bob_dylan_I remember Woodstock, can still recite the lyrics of most of Bob Dylan’s early protest songs and while there can be no doubt that “the times they are a changin’” for the housing industry, it is not by any means a radical change. There is no “battle outside ragin’ to shake your windows and rattle your walls.”  Instead, these changes are simply the evolutionary cyclical turn of the wheel.

Do you remember housing cycles or, if you have not been in this business long enough to experience one, have you at least heard of them?  The Baby Boomers, which have been the major drivers of housing demand in this country for the past 40 years, have pretty well run their course in regard to conventional housing.  We have built more than sufficient move-up product recently and the additional homeownership opportunities for this market segment are probably limited for the most part to active-adult (55+) communities      

While the demographics suggest that the Echo-Boomers (or “Millennials” or “Generation Y”, if you prefer), will, in time, more than replace their parents’ generation and become the next major driver of housing demand, the present economic conditions and the ever tightening grip on credit will make it difficult for these potential home buyers to match the homeownership rates of their predecessors by the time they reach their 30s and 40s unless we act intelligently to assist them.  Married couples without children (including empty-nesters) will be the fastest-growing household type, followed closely by single person households. 

I would propose that the solution is to “go back to the future”, to the housing products with which we were successful in the late 60s and early 70s for the Baby Boomers, maintain that cost effectiveness but update them for the 21st century with the design and features that the new markets have come to expect, and ride that wave to success and profit.  These were initially smaller, affordable homes but with integral expansion capabilities and with some forethought we can design and build them better today to reflect the new markets and their needs and wants.

And to fully and properly service the new target markets and help them in achieving their goal of home ownership we will have to provide the same services and assistance that we did thirty or forty years ago but updated with the current technology and tools that we now have available. 

Additionally, as household growth among Hispanics and Asians is anticipated to continue to accelerate, adjustments in community and housing design are required including product for the multi-generational households which are more common within these ethnic groups. 

As George Santayana wrote in his The Life of Reason, Volume 1, 1905,Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”   

So let’s not repeat the mistakes of the past, especially the recent past, instead remembering the past while also learning from it.  Study the underlying reasons why we sold houses to the Baby Boomers, then implement the obvious changes for today’s markets and enjoy the well deserved success and profit from going “back to the future.”back-to-the-future

Please visit our company’s website to learn more about our services and feel free to contact me for further details on what I believe are the necessary steps to maximize our success with these new target markets – http://levitanassociates.net/default.aspx.

10 thoughts on “BACK TO THE FUTURE FOR THE HOMEBUILDING INDUSTRY

  1. What a great article. I am sending this to all my homebuilder clients. I hope that builders will listen and not make the mistake of building the same product over again.

  2. Pingback: Dan Levitan’s “BACK TO THE FUTURE FOR THE HOMEBUILDING INDUSTRY” «

  3. We all see how our consumptive appetites have inflated our industry with oversized homes, unqualified, unaffordable mortgages, xtreme credit debt, too many toys, and unhealthy spending habits. That consumerist culture has invaded the Fed and our government to the point where we are finally awakening to the fact that our overspending will never be able to be repaid and our standard of living will drop significantly.

    The Homebuilding Industry reflects a key measure of that standard of living…as we watch it degenerate. Yes, we’ll be producing smaller, compact, more efficient homes in new configurations to accomodate that lower standard of living. Hyper Inflation will demand it. The question will be…Can the single and childless couples be able to afford it.

    If we don’t, as an industry, put a stop to Fed spending policies….they won’t… no matter how far “Back to the Future we plan to go!!

  4. As a Millennial who will almost certainly be a DINK (double-income, no-kid) household, I agree with your assessment of the need for change, and the type of change, in providing housing to people of my generation.

    While not a home owner myself, the friends I have who have already purchased, have chosen townhomes and condos, even those who live in the suburbs where larger homes were available.

    The issue, as Bottarelli points out, is affordability. Our generation is the first in American history that’s expected to be less financially successful than the preceding generation. Those of us just graduating college are out of work, with no end in sight for when those least experienced among us may earn a professional wage.

    This, the high cost of our debt coming out of college, increased cost of living and poor understanding of personal finance, are all reasons for concern when looking at home buying. Not only do we generally want smaller homes closer to where we work, we will most likely need greater financial assistance in buying our homes than previous generations.

    Yet another thing to consider when building homes for Millennials is our rather transient existence. We tend to stay in jobs less than three years, switch careers and, without children, are more apt to move from neighborhood to neighborhood, city to city.

    I’d like to one day be a home buyer, but it’s honestly a daunting thing to consider when I factor in costs, available assistance, long-term commitment, etc.

    I can say one thing, though, I have no desire to ever own something with more space than I need to live, and I want the home I eventually by to be as energy efficient as possible.

    Good post, Dan.

  5. It’s easy to support your call to mine the success of the 60s and 70s (can we say tract house?). Delivering right-size, value and flex/expansion space will be very important. We also need to look very closely at what makes the Millennials tick. Since this generation is larger than the Boomers, they will most certainly drive the future of the new home industry. These “kids” think, act and want differently. We need to learn their moral values (surprisingly conservative), social preferences (friends first) and dreams for their future. Could it be that this new wave wants to see more the pattern of the 20s and 30s city bungalow neighborhood and transit oriented apartment? This will exciting times, kids, if all us Baby Boomers realize it’s not all about us any more!

  6. Good points as always Dan.
    But we have a problem our predecessors of the 60s and 70s didn’t face. Building codes, DEP regulations and other costs of approvals have layered so much cost on what would otherwise be cost efficient homes.
    Builders are now faced with having to find affordable infill sites and creating plans with must-have features that buyers cannot create for much less money by remodeling those homes from the 60’s and 70’s that are in terrific locations.

  7. Well put, Dan. The challenge and task at hand for our homebuilding industry is to find the time and resources to devote to the major product redesign that these emerging market dynamics will demand. With challenge comes opportunity and your article has clearly identified where that new opportunity will exist.

    As an industry, we need to adopt a new paradigm and realize that we are perfectly capable of adapting to market forces and developing home plans that are more modestly sized but better designed. These new home plans will necessarily combine affordability with better functionality and energy efficiency and be targeted to meet ,not only the needs, but also the expectations our new ” back to the future “market.

  8. Dan, I had the pleasure of attending your IRM classes and recently received my MIRM designation this year. I really learned a lot from you about understanding and tracking demographics which ulltimately helped me with analizing potential new housing trends. I’m from Connecitcut about an hour out of the city and seeing strong signs of the following trend “co-generational” living.

    Builders need to think out of the box by designing homes to address the demand for “family commune living” as history is repeating itself and veering the ugly truth that “freedom” is not at our doorstep and is reminding us that our “golden years” might very well be passing most of us by through no fault of our own. I’m speaking to many seniors who are singing that old familiar song…. “life is but a dream shaboom, shaboom, shaboom”! And, the reality is,their grown children aren’t leaving home to go off to college, they’re commuting locally. In addition, Mom, Dad (or even both) may very well have to come live with their families and put an addition on their home ……yadda, yadda, yadda!!! Opportunity is knocking where builder’s could really capitalize on creating a “special need design” within their existing in planned communities. Just add a model which looks like a single family home, and with a little help from planning and zoning families might just have a life again and builders may actually sell more homes. In addition a tax credit incentive can be offered to anyone who purchases a home from a “senior”. This may help stop the bleeding for seniors and get their homes sold,and help home builders sell more homes in their communities.

  9. Good post.

    I believe multi-generational housing will become much more common in this country.

    However, the assumption that home ownership will still be a common goal for the majority of people may not be as valid as it has been in the past.

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