No one knows when exactly local housing markets will recover, banks will emerge from paralysis, or just how deeply the recession will permeate consumer sentiment in the years to come.
But there are some sure things that will alter the housing landscape over the next decade, according to a panel of Urban Land Institute senior resident fellows who spoke at ULI’s annual conference in Washington, D.C., earlier this week. Among them: demographic population shifts, financial restructuring, global competition, and climate change.
“These trends will continue regardless of location, of which political party is in power, and of how quickly we recover from the recession,” Maureen McAvey, ULI’s executive vice president of initiatives, said during the briefing. “Taken collectively, they will create the ‘new normal.’”
Here are five predictions culled from that panel and from the newly released ULI report “Finding Certainty in Uncertain Times.”
Urbanization of the ‘Burbs
Despite renewed interest in downtown living, outer suburban areas in the United States grew nearly three times faster in population than central cities and inner suburbs over the last decade. ULI senior fellow and finance expert Stephen Blank believes the fabric of those neighborhoods is about to change with added density. He predicts a shift away from large-lot homes on the fringe toward infill locations that are closer to 24-hour markets. But he qualifies that round-the-clock communities are today just as likely to emerge in the outer ‘burbs as they are in the urban core. “Expect to see more high-rise and mid-rise apartments and townhouse projects built around shopping centers and commercial districts,” Blank writes. “Failing retail space will be converted to accommodate other uses, often with residential components, and more under-occupied suburban office campuses will be transformed into mixed-use properties.”
Homeownership rates reached unsustainable levels during the boom and will now inevitably correct, predicts John McIlwain, senior resident fellow and ULI/J. Ronald Terwilliger Chair for Housing. Although the U.S. population continues to grow steadily, adding 2.5 million people each year, “U.S. household formation has crashed, dropping to less than one-third of the long-term average of 1.4 million a year,” he observes. “While several million people are waiting in the wings to form new households when jobs come back, the two big questions are what they will be able to afford and whether they will buy or rent.”
McIlwain believes falling wages, high college debts, and overburdened parents (who lost considerable equity in the downturn) will fuel a robust rental market for the foreseeable future–particularly among Gen Y, who will rent far longer than previous generations before buying a house. As a result, homeownership levels, which are currently at 66.9%, will likely drop to levels not seen since the 1980s–to between 62% and 64%.
Momentum for green building has slowed as environmental stewardship has taken a back seat to pocketbook issues, but green isn’t a fad that’s going away, contends Edward McMahon, senior resident fellow and ULI/Charles E. Fraser Chair for Sustainable Development and Environmental Policy. If anything, it’s a movement that will continue to grow in spite of the downturn.
The lion’s share of that impetus will come from local governments and the private sector, not the federal government, he says, noting that the wheels are already in motion. The U.S. Green Building Council now certifies 870,000 square feet of space daily, and the nation now has roughly 1 million Energy Star rated homes and more than 9,000 Energy Star-certified commercial buildings. Wal-Mart recently announced plans to build all of its new stores to LEED standards.
Furthermore, McMahon points out, 33 states (representing 70% of the nation’s population) have already developed climate action plans, and 21 states have set carbon reduction targets. More than 1,000 U.S. mayors have adopted Kyoto protocols. He believes resistance and concerns over the cost of green building will dissipate with the advent of better products, improved procedures, and greater expertise from real-world experience. Land planning, he adds, will increasingly factor into carbon reduction goals, particularly when it comes to reducing car trips. “The location of a building is as important to energy efficiency as how a building itself is designed and built,” he says.
New Promised Lands
Global gateway cities such as New York, Chicago, and Los Angeles will always be desirable locations to live and work, but the “knowledge economy” could help determine the burgeoning housing markets of the next decade, according to Tom Murphy, senior fellow for urban development. Just follow the venture capital and R&D funding. Investments channeled through higher education, medical institutions, and enterprise start-ups will prove to be an essential ingredient in seeding new “creative class” communities in the years ahead, Murphy argues.
The ULI report also tracks good examples of “creative and nimble” metro areas that have embraced change, seeded new economies for employment, and offer a unique quality of life. Examples of such cities include Austin, Charlotte, Minneapolis/St. Paul, Nashville, Portland, Raleigh/Durham, and Tampa/Orlando.
In addition, the report hypothesizes that many of the areas hit hardest by the housing bust (think Detroit, Cleveland, Las Vegas, New Orleans, Philadelphia, Phoenix, Pittsburgh, and Sacramento) will become prime spots for reinvention and rebirth. “Many of these markets currently have commercial rents substantially below replacement costs, yet had outsized population growth from 2000 to 2008… They may have hit the floor hard, but their dogged spirit of reinvention lives on, and all that vacancy and speculation may give rise to the next great thing,” McAvey writes in the report.
An Inverted Population Bell Curve
Half the U.S. population is now represented by demographic cohorts at opposite ends of the home buying spectrum: baby boomers (age 45 to 65) and their offspring, Gen Y (age 18 to 32), which together account for 150 million people.
“Both represent lifestyle change,” asserts McAvey. And those lifestyle shifts will spark demand for alternative types of housing. ”Boomers will begin moving to retirement, downsize, and make increased demands on the country’s health care system. Gen Y will form new households, pair up, try to find more permanent jobs, have children, and set new patterns of consumption,” she writes. “Both groups will embody market preferences that break from recent past and pre-recession expenditures.”
Jenny Sullivan is a senior editor for BUILDER covering architecture, design, and community planning.
Learn more about markets featured in this article: Minneapolis-St. Paul, MN.