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Editor’s Note: This is the second installment in a series stemming from the follow-up America at Home Study, which was spearheaded by marketing expert Teri Slavik-Tsuyuki of tst ink, consumer strategist Belinda Sward of Strategic Solutions Alliance, and architect Nancy Keenan, president and CEO of Dahlin Group. View the first article here.

One of the positive impacts of the pandemic on new-home construction has been the increase in the number of renters who now want to become homeowners, representing a potential new-home demand of 7.6 million. Millennial renters lead the way—58% of them say COVID-19 has made them more inclined to want to own a home, according to the America at Home Study, wave two, conducted in October. For home builders and community developers, this is both a challenge and an opportunity.

Millennials, born between 1981 and 1996 and some of whom turn 40 this year, represent the largest home buying generation. When asked about how they define wellness and how satisfied they are with different aspects of wellness in their life, “financial well-being” is at the top of the list and the area they are least satisfied with. Much has been written about the weight of student loan debt and the effect the Great Recession has had on upward career advancements for this generation. New-home affordability remains a concern, but even so demand from renters now wanting to become owners grew between April (wave one) and October (wave two) of the study.

On the Jan. 27 Zonda webinar on COVID-19 and the Housing Market, Tim Sullivan, senior managing principal of advisory, shared the latest from its builder sentiment survey that indicates builders are seeing this demand materialize in their communities. When asked, “How is 2021 shaping up so far for your local operation in comparison to your expectations?” 22% of builders said demand is particularly strong for entry-level product.

Which Trade-Offs Are Renters Willing to Make to Increase Their Ability to Purchase a Home?

While COVID increased new-home demand on the part of renters, for many it also devastated their income and pushed that dream further out of reach. Knowing this, the America at Home Study asked renters what trade-offs they would make to be better able to afford a home. In both April and October, respondents were very willing to give up a private yard if it meant a greater ability to buy—52% listed this as their top trade-off in October. In both waves, “access to open space via a balcony, porch, deck, or patio vs. having a yard” was the highest ranked trade-off.

“Struggling to find density solutions has been a focus with many of our clients for some time,” says Nancy Keenan, president and CEO at Dahlin Group Architecture Planning and one of the partners behind the study. “The good news for builders and developers is our data shows they have the opportunity to celebrate denser product solutions with smaller private outdoor spaces for buyers who don’t see giving up a yard as a deal killer if it means they can afford to buy.”

As life with the pandemic continued through 2020, the trade-offs renters are willing to make to be better positioned to buy all increased and coalesced around two things—the importance of affordability and location. The biggest increase—12% from April to October—was in those willing to combat lack of new-home affordability by purchasing an older resale home, now the choice of 41% of all respondents. Add to that the 5% increase in renters saying they want a home with built-in revenue potential in a room or suite with its own separate entrance—cited by more than a third of respondents—and the importance of new-home affordability is clear.

It’s also clear renters are willing to move to buy. The continuation of remote work is expected to deepen this trend. A “different or less expensive location” was the second most cited trade-off. The run to rural is real, with an 8% increase in acceptance of a home in a rural location between April and October. But don’t write off cities either. Willingness to move to an urban location, if it increased the ability to buy a home, rose by 5%.

Single-Family Preferred, but Interest in Multifamily Increases

The great majority of renters wanting to buy a home would still prefer to purchase a single-family detached home, but there were notable increases in preferences for multifamily homes in October versus April. These shifts were greatest for millennial and Gen X buyers, with single-family detached homes dropping in favor with these groups by 6% and 8%, respectively. Like April, there was still very little interest in mid-rise and high-rise apartments or condos for sale.

Interest in attached townhomes grew into the double digits with 14% of Gen X renters saying they would be most inclined to buy a townhome—a 100% increase since April. Preference for attached duplexes grew to 10% for Gen X renter respondents as well. While these numbers don’t sound huge, it’s the context that matters. There was virtually zero interest in duplexes in the April data, and, by October, millennial interest in duplexes was nearly 10%. For these younger renters itching to own a home, thoughtfully designed townhomes and duplexes could be a home run, especially if they include a small private outdoor space like a porch or a patio and can be easily demonstrated digitally.

Digital Home Buying Is Here to Stay

One of the biggest pivots home builders made during life with COVID-19 was transitioning their physical sales experience to a virtual model, or at the very least to a hybrid version of carefully controlled in-person visits supported by digital tools. During the October wave of the America at Home Study, homeowners and renters were both asked how comfortable they were with different home shopping experiences, from fully guided in-person, to working with a real estate professional, to hybrid models mixing in-person and digital experiences, to a fully virtual one.

The completely virtual experience—“tour model homes virtually and make home plan selections online; complete your purchase virtually”—was very comfortable to 58% of millennial homeowners, 49% of Gen X homeowners, and 40% of Gen X renters. Not surprisingly, renters, who may be less familiar with the home buying process, felt a greater need for the in-person experience.

Great digital customer experience became critical during the past year. Builders and developers alike fast-tracked the digital evolution of their businesses. The team behind the America at Home Study is laser-focused on the digital customer experience as they collaborate with Garman Homes to design and build a concept home at Chatham Park in Pittsboro, North Carolina. They’ve invited Cecilian Partners, a company that helps home builders and master-planned community developers transform the customer experience through the use of data, technology, and human capital, to create and demonstrate a modern community and home shopping experience for the concept home.

Co-founder and CEO John Cecilian points to a Salesforce survey of over 6,000 consumers that found that 76% expected companies to understand their needs and expectations. Are we prepared to do that today for our future home buyers? Are we set up for success to understand the digital customer journey? Do we have the datasets needed to get a complete 360-degree view of our customer?

“Digital home buying is about the ability to create an end-to-end customer journey. Really understanding how your customer has come to your website, how to keep them engaged, and how to follow up in a consistent and modern way by using smart data and insights help tell the brand and product story. It is not (just) about ‘email sign-ups’ and other antiquated methods that happen in welcome centers, model homes, or even within the online sales team,” Cecilian suggests.

New-home construction is one of the fortunate industries to benefit from the upper end of the K-shaped recovery Zonda’s Sullivan often refers to. Perhaps another silver lining will be a committed focus on creating new homes that are more attainable for the huge number of first-time buyers with the will and desire to buy, and a commitment to offering them a better digital customer shopping experience.