My younger son and his wife of two years are the point of the spear of the Millennials. He is 34 and she is 30. Married for two years after several years of living together in New York, both are college educated and have good jobs in the city. They make okay money, but not investment banker/hedge fund stuff.
Both moved there right out of school, got jobs in the teeth of the recession, and lived the NYC lifestyle with a one-bedroom apartment on the Upper East Side. No car was needed (and couldn’t afford the parking anyway) and consumption was limited by the space of the apartment. Every bit of storage was packed to the density of Plutonium.
It took each about 30 minutes to get to work with a combination of the subway and walking.
But they saved.
This past spring they announced that they were looking for a house around Rumson, NJ, where she grew up. The location of residences of Bruce Springsteen and Jon Bon Jovi, Rumson itself was not accommodating for a starter house on their budget, but Fair Haven (next town over and sharing a school system with Rumson) was a viable option. Less expensive, less tony, smaller houses, but on an upward path as a reasonable living alternative for those getting into their first house, Fair Haven offered 50-year-old, Cape-style homes on reasonable sized lots on tree-lined streets. The homes were priced mostly from $400k to $700k and most needed some kind of work.
So at the end of June they pulled the trigger. Bought a new SUV (for cash) and bought one of the 50-year-old Capes with a reasonable down payment. They had saved enough to cover the down payment, plus had money set aside to do the fix-up work they thought the house needed (yard sprucing up; a new shower door, re-do the flooring; repaint the inside; expand a small existing deck into a nice outside entertaining space; insulated blinds for the windows).
They are in the middle of doing the work now, trying to find reliable contractors to do the work, but grinding through the process. The commute into the city is now between one and one-half and two hours each way, and that is one of the prices they are paying to have a home that is theirs in a location they want.
They would probably have liked to look at new homes, but there essentially is nothing new, other than million dollar customs, in the area. They have to live with what is available, the classic cape that over the years has had a second floor bathroom addition (to make it a 2-bath house), a kitchen/family room addition, and a deck. Still at about 1500 square feet, it is a nice starter house and fits the bill.
Congratulations to them on having the discipline of saving and then moving into their first house.
On the way back to Maine from visiting them, we stopped to see a long-time friend outside of Boston. In her late 60s, she is recently widowed; her husband died suddenly a little over a year ago. They lived in one of those beautiful white-clapboard/black shutter colonials built in the 1920s in Wellesley, one of the top suburbs of Boston. Suddenly single, the big house didn’t fit either her needs or her revised budget anymore. But her kids and a new grandchild were nearby and she wanted to stay in the area.
Although a condo might have seemed a good choice, a big, white Samoyed dog needed a yard, so she began to look at smaller houses. She really wanted something smaller, but newer, but not much was available in her $400k-$600k range.
After looking and looking, she found a 60-year-old cape in the next town over, Natick. But it needed work. It only had one bathroom and needed an extra one put in on the second floor to service the two bedrooms up there. The master bedroom and the bath on the first floor needed to be re-configured to make a more up-to-date master suite. The detached one-car garage needed to be expanded and connected to the house, too.
She would have liked to have a new house, but nothing new, other than multi-million dollar customs, are built in the Boston suburbs anymore. This house did fit her budget, though, and she bought it outright for cash.
My guess is that she will have to spend somewhere between $50,000 and $150,000 in addition to make all of changes she wants happen. But that will be cash, too. That is the advantage of being on the baby-boom end of the spectrum.
Congratulations to her, also, for making the difficult transition into a new living condition.
The fact that both a millennial couple starting out and a baby-boomer downsizing ended up with essentially the same house was the thing that got my mind to work.
In the past, I have written about the discontinuity of where people want to live and where the jobs are and whether there is housing stock to accommodate their needs. Density of redevelopment was one of the solutions.
However, remodeling of existing older homes, many of the same core design, is the other opportunity to create almost-new home designs in existing neighborhoods that fit the needs of many.
Right now, that remodeling is done by a gaggle of small contractors working independently. I was interested to find that the home renovation market in 2015 is anticipated to total $320 billion (!), which is over three times the size of the new home sales estimate of $103 billion.
And that market is the province of mostly small contractors, whose buying capability is limited by small volumes. It would seem that pricing and costing have a capacity to come down with some degree of scale.
It reminded me of the writing I did 5 years ago talking about single-family for-rent. At that time, the common wisdom was that single-family for-rent was mostly a mom and pop business and there wasn’t much capability to scale it. Too diverse.
The big builders ignored the opportunity and up-starts came in, learned the business by buying distressed assets, and suddenly learned how to make money and manage the scale, even with non-distressed and, in fact, new assets. Now late to the game, some builders are moving into the new single-family for-rent business.
It seems to me that a similar roll-up opportunity is sitting there for the remodeling/renovation market, if given some thought and structure.
Whether it is the classic cape in the northeast and Mid-Atlantic States, the ranch home in the south and west, the stucco block home in Florida or Arizona, or the small colonial in the mid-West, there are common designs out there for houses built 25-75 years ago that are in great, mature neighborhoods already. Places that already are walkable and near jobs. Places where both millennials and baby-boomer alike would like to be.
I believe that there is a set of common design solutions for these classic old home types that could be structured and bid out on a common basis and provided in a semi-production manner by builders looking to build scale by doing it over and over again. Perhaps using a design studio to choose colors and tops and flooring, the trick would be to understand what you can do repetitively and what you can’t.
Leave the custom stuff to others and focus on what can be done repetitively.
I think that there is an opportunity; just like 40 years ago there was an opportunity for production builders to grow scale and standardization and create a cost and marketing advantage over custom builders. And that was the start of the roll-up that became the public homebuilders that we know today.
The question is, who is going to look at this opportunity, provide structure, technology, and marketing to it, and turn it into the next big roll-up that has a market cap of billions?
There are millions of homeowners out there who could benefit and a huge existing demand.
If builders think of themselves as providing shelter, whether it is for sale or for rent, and whether it is new or remodeled, a whole new universe of opportunity presents itself. However, if one defines ones-self as only providing new, for-sale housing in newly developed communities, the opportunities and margins may be limited.
It might be time for a discussion, don’t you think?