Real estate experts predict trends

Monday, 08 February 2010

By Ashley Fletcher Frampton
aframpton@scbiznews.com

CHARLESTON -- Younger generations looking for smaller homes, urban lifestyles and sustainable communities are among the forces that will shape the future of real estate development, two local experts said Friday.

Those younger generations will also question the value of homeownership, something developers must overcome, said Diana Permar, principal of local real estate consulting firm Permar Inc.

Permar, speaking to a crowd of more than 200 developers, attorneys, planners and others gathered in downtown Charleston for the state’s annual Urban Land Institute conference, didn’t try to predict when the market will rebound.

Instead, she and fellow speaker Jim Chaffin, a principal with the development firm Chaffin Light Associates, painted a picture of what trends will drive development when it does.

Some of the shifts in demand are related to demographics and were emerging before the economy sank, the speakers said. Others are results of new, post-recession values.

Generational shifts

Chaffin said the baby boomer generation, those ages 45 to 63, has shaped real estate demand in the United States for years. The baby boomer generation represents about 78 million people.

That generation’s children, known as “echo boomers,” total about 76 million. With immigrants adding to that cohort, the echo boomers will eventually outnumber their parents’ generation, Chaffin said.

“They are our housing market,” he said.

Unlike their parents and grandparents, Permar said younger generations have seen risk associated with homeownership and will not necessarily view real estate as a safe investment.

That means a higher demand for rental housing.

Permar said the U.S. rate of homeownership peaked at 69% a couple of year ago, and it’s expected to fall to around 62% to 64% in the next few years.

Among those who will buy in the future, the demand will be for smaller homes, Permar said. Also, buyers will look for homes they can own for longer periods of time – homes that can adapt as their lives change.

Buyers will no longer look at houses as automatic teller machines, she said.

“Housing becomes housing again,” Permar said.

Over the last five years, Permar said many in the baby boomer generation have turned 50, which is the average age for buying second homes. Many have also turned 60, which is the average age for buying retirement homes.

Some developers think boomers hitting those milestones are waiting for the market to turn before making the usual real estate investments, Permar said.

But she thinks the moment may have passed for some 50- and 60-year-olds. Instead of buying new real estate, they have moved on.

“We shouldn’t depend on them,” she said.

Urban and suburban cores

Chaffin said a trend with both baby boomers and echo boomers is a desire to live in urban areas. The shift creates challenges for both generations and for developers.

Many in the boomer generation will try to sell their suburban “McMansions” in order to downsize and move to more diverse communities, Permar said.

Their challenge is that the generation between boomers and echo boomers – those who would be in a position to buy the McMansions – is a much smaller group, she said. So not everyone who wants to sell their large suburban home and move to the city will be able to do so.

Chaffin said echo boomers’ demand for urban housing presents a different challenge: Young parents might prefer to send their children to public schools in the suburbs. As a result, he predicted the increasing emergence of suburban town centers with amenities similar to those in cities.

Developers also face challenges in urban development, Chaffin said. Land is more difficult to find than on the fringes, it often costs more, and developers can face intense opposition from downtown residents resistant to change.

Green and sustainable

Both speakers said the move toward sustainable development and green building practices is a given.

“Frankly, it’s only a matter of time before all new buildings will be green buildings,” Chaffin said.

Developers who don’t believe that “will be roadkill,” he said.

Making the United States more energy efficient and less reliant on foreign oil requires more than new technologies like hybrid cars and wind turbines, Chaffin said. Land development patterns that reduce dependence on cars must be part of the answer.

Permar said the post-recession consumer mindset will reject ego-driven spending. Instead, consumers will focus more on sustainability and not being wasteful.

She told developers that their future success will come from conveying clearly what their values are and what values will shape the communities they build.

“It’s not just about price – it’s about value. And it’s about values,” Permar said.

Published Feb. 8, 2010