Builders who think that they can dust off old home plans once the market returns to equilibrium should think again—tomorrow’s buyers won’t want those plans, even if they could afford them.

That was the unsettling message conveyed by Harvard-educated James Chung, president of Boston-based Reach Advisors, speaking on “The Demographics of the Next Decade” at the 2010 PCBC conference held in San Francisco

Chung, who consults with masterplan developers, warned that builders can't afford to build “outdated” plans once market strength returns. “Demand will materialize in a different form,” he said.

The demographer added that newly created home building companies with younger leaders will be at a competitive advantage in the race to make home sales. They are likely to take share from incumbent builders, who must “completely remake themselves.”

Chung believes the housing industry faces a “double whammy” in the short run. First, because fewer Generation X buyers are coming up behind baby boomers, there will be more houses for sale than buyers looking to move into those houses. Second, these younger households moving into their peak home-buying years don’t have the wealth that baby boomers did.

Government data shows that, while Americans age 55 and older experienced income growth during the 2000 to 2008 period, income fell for younger Americans. For example, people between the ages of 45 to 54 lost 11% of their income, and those between the ages of 35 to 44 lost 5%. Because of this income shortfall, which will likely weaken the trade-up market, Chung predicted that the next five years for the home building industry “may be tough.”

Moreover, Generation X, Chung said, doesn’t place economic value on the housing and community characteristics that drove growth in the past. Chung's work shows that Gen Xers don't care as much as Baby Boomers about community names or interior finishes.

“They are more interested in connections with community,” he said. “They like [social] programming that brings a community together. ...They tell us things like, ‘I would like a neighbor that I could call for a cup of sugar.'” They are also less interested in big homes, he said.

The home building industry’s prospects look better over a 10-year period. That’s in part due to the sheer size of Generation Y, which rivals the baby boom in numbers and should be buying more homes later in the decade. Moreover, this cohort “exhibited higher spending patterns” through 2008 than the generation before.

Women, who already play a major role in housing purchases, will be an even more important influence in years to come. A "reverse gender gap" has emerged among Generation Y, Chung said. Men were 1.5 times more likely to have a college degree in 1972. Today, it's women who are 1.5 times more likely to have a college degree.

Chung’s early research shows that these young women have not only closed the income gap with their male counterparts, but that they are earning 95% to 120% of what men earn in cities with “knowledge-based business bases ... They are also more likely to be saving money.”

Chung has little doubt that, because of their high education levels, Generation Y women will delay forming households and buying homes. His work shows that they are more fiscally conservative than men their age and much more likely to weigh trade-offs and do research before making purchases.

Gen Y women are also seven times more likely than their male counterparts to say they like to read a book for pleasure, Chung said, half-joking that Gen Y men care only about basketball courts in the community. Gen Y women are also looking for signs of physical and psychological safety. "They want to know whether it’s safe enough in a community to jog in the early morning or late evening," Chung said.

Because of their sheer numbers, “Generation Y will reshape everything, just like baby boomers did,” Chung said. But because they are conservative spenders and don’t have high income levels, “it will be a slow boom.”

Home builders will also face a continuing challenge to market homes to a growing minority population. Minorities, Chung said, accounted for 20% of the U.S. population 25 years ago; they currently represent 34%. And 25 years from now, nearly half the population (46%) will consist of minorities.

But compared to other nations, the United States will have population growth, from 300 million to 350 million during the next 15 years, Chung estimated, making it the only fully industrialized country to see its numbers increase. It will also be the only fully industrialized country where it makes sense for children to “grow up and say I want to be a real estate developer," he said.


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Boyce Thompson is editorial director of BUILDER magazine, where he also writes the blog Boyce on Building.

Learn more about markets featured in this article: San Francisco, CA.