One Size Does Not Fit All

By Katy Tomasulo

It's no secret that the housing market is re-bounding, slowly but surely. The National Association of Home Builders expects single-family housing starts to climb to over 800,000 this year (from a rock bottom of 445,000 in 2009) and multifamily to maintain a little less than 400,000.

As the growth continues, lingering challenges from the recession and shifting demographics are having an impact on the type of housing being built in many markets and, as such, are changing the way in which some suburban and exurban communities are taking shape.

Local regulations sometimes get in the way of developments that strive to meet changing demand for housing types. Builder and planner Bryan Stumpf says officials, residents, and buyers now like the smaller, alley-loaded lots at Harmony near Indianapolis, which is denser than the area was used to. But it took some "jumping through hoops." Courtesy Estridge Homes.

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Much of the growth during the first few years of the recovery, including last year, was spurred by multifamily development, particularly rental properties, which comprise 95 percent of current multifamily product compared to an 80 percent norm.

Lagging first-time home ownership in general due to financial constraints is one cause for the rental uptick, for sure, but another is sheer volume: There are 25 million millennials aged 20 to 25, an age group that leans heavily toward rentals. In some markets, however, there's already oversaturation, so the robust pace of multifamily development is likely to cool down, and in most areas is leveling off.

The single-family sector is about halfway recovered, according to the NAHB. Expectations are for single-family to grow in the coming years, including for millennials, whose job woes and student loan debt have put home buying on hold. Still, "we know these young people have the same goals" as the generations that came before them, says NAHB chief economist Robert Dietz.

Challenges remain beyond millennial buying power, chief among them being what Dietz calls the three Ls — lots, lending, and labor. Most relevant of those to planners is the availability of lots — particularly the desirable ones, known as As and Bs — which are scarce in many markets.

"Lot availability has definitely been a problem," notes planner Bryan Stumpf, AICP, vice president of development at Estridge Homes in Indianapolis. "We burned through the distressed lots years ago. So we're seeing prices for lots at prerecession levels, because the supply is not there."

It is certainly affecting how communities are being developed, both closer in and farther out. In the exurbs, developers are touting amenities and affordability. Closer in, there's an impending shift from large communities to tear-down construction and infill. In 2015, there were 55,000 single-family homes built as part of a tear-down process, nearly eight percent of all single-family starts, which is up from about five percent in 2014. What does that mean for the market? "It says that there's a sizable share of the market that is due to this different form of construction [rather] than greenfield development," explains Dietz.

Tighter lending has constrained construction and, even more so, limited lot development, he says.

As a result, builders and planners are getting creative and often wading through regulations — not to mention resident preferences — to meet changing needs. Estridge's Harmony development north of Indianapolis, for example, is made up of 277 acres cleaved together from 13 parcels. That development eschews the typical 80'x140' lots in favor of 60'x75' conventional lots and 42-foot-wide and 50-footwide alley-loaded lots. It's the first time the area has seen that type of density, and the first alley-load approach, but it's one that the city and existing residents have responded well to, Stumpf says.

"There's often a conflict between the comprehensive plan vision and what the zoning allows," he notes. "We want these communities, but ordinances are written for 80'x100' lots and mass-production housing. We've had to jump through hoops. But the city understands what we want to do."

Shifts in buying norms

It all adds up to a slow recovery. "The trend of purchasing new homes has been very suppressed," says Jessica Lautz, managing director of survey research and communications for the National Association of Realtors. "We currently have only 16 percent of buyers purchasing a brand new home. Historically, it's substantially higher than that." The depressed building market is contributing to that, she says, along with constrained inventory in lower price brackets.

The recession took a toll on traditional buying patterns. Typically, first-timers make up 30 percent of home buyers, Dietz says; today it's less than 20 percent. The cause is twofold: tough economic conditions for millennials and Gen Xers because of the tight job market and student loan debt, alongside supply-side constraints that are pushing housing product toward wealthier move-up buyers.

Exacerbating the problem: Gen Xers are staying in their first homes longer because of price depreciation from the housing crash, which further limits availability of affordable homes for millennials. Finally, there is a shift in lifestyle — younger generations are waiting longer to get married and start traditional family-based households.

It's something that can be seen in housing size, Dietz says. During the recession, square footage dropped, but now the average home size is back above what it was even in the boom years, to over 2,600 square feet. Consumer preference is partially the reason, but the lack of entry-level stock — which is typically smaller — is throwing off the averages.

Dietz expects to see an uptick in first-time housing product, with one indicator being an 18 percent rise in town house construction from 2014 to 2015.

One trend across the board: a paucity of affordable homes. "Most communities are seeing an extreme lack of affordable housing," says Adam Perkins, AICP, urban planning manager for the Downtown Denver Partnership and chair of the Housing and Community Development Division of APA. "With prices skyrocketing, there's just no room for affordable housing. It's getting harder and harder as it goes on."

The U.S. is experiencing "persistent affordability problems," agrees Janet Viveiros, senior research associate at the National Housing Conference. "We're seeing incomes going up slightly, employment improving, but there are still significant affordability problems." The organization's 2015 annual report found that a quarter of all renters are spending more than half their income on rent, which creates a barrier to savings and has ramifications for daily life. Even in areas where housing costs are low, she says, the housing cost burden is still immense due to low wages.

"This is where it's important for communities to get involved to encourage the development of affordable housing ... Because oftentimes, mathematically, there's a gap," Viveiros says. "It takes an active, engaged community to decide that affordable housing is important."

Generational influence

All of these economic and demographic indicators are influencing the housing product and the characteristics of communities — while some long-held trends remain the same.

The notion that millennials will leave the suburbs as ghost towns is proving to be false. "Every consumer preference survey I've seen suggests that broad masses of Gen Y and young Gen Xers still have the same aspirations of home ownership as prior generations," says Dietz, notably a desire for suburban and single-family housing.

The draw of good schools and more affordable options are chief drivers for millennials, particularly older ones, who are now in their early 30s.

The National Association of Realtors Home Buyer and Seller Generational Trends Report 2016 notes that the number of millennials buying in urban or central city areas decreased from 21 percent to 17 percent in the past year. "Overall, the majority of buyers in all generations continue to purchase a single- family home in a suburban area," according to a press release tied to the report. The association also notes that even if millennials wanted to live in an urban area, there is limited availability in their price range and few entry-level condos for sale, making it extremely difficult to buy there.

Still, those age groups do want walkability, which calls for suburban communities to have convenient retail and grocery stores. That way, once the long commute home is complete, they can stay put. They also are looking at proximity to their jobs and to their families, along with quality of schools.

"For a lot of folks, if they grew up suburban, they want to live like that," Stumpf acknowledges. "But they don't want it the same way. They don't want the beige tract home that looks like the others and doesn't have amenities. They want to be where the activities are." He notes, though, that in Indianapolis, urban living is popular with millennials.

A sense of community is key, he says. Harmony, for example, avoids cul-de-sacs and neighborhood segmenting, instead blending the different lots and home types. "People don't want to be isolated. They want to be actively engaged in their community."

In some cases, the generational shifts are reversed, with boomers moving into urban areas. In Houston, for example, David Weekley Homes is stocking its infill communities with a mix of young professionals and empty nesters, and is designing communities with several home styles to accommodate their different needs, tastes, and budgets. Similarly, Harmony is targeting millennials, families, and active empty-nesters.

Drawing out buyers

Because the dream of suburban home ownership is still strong, developers and planners are getting creative about how to attract buyers to C and D community locations that are farther out.

For Wade Jurney Homes, that approach is simple: affordability. Prices in the Greensboro, North Carolina-based builder's communities in the Carolinas and southwest Florida span from $80,000 to about $200,000, which is drawing buyers to its neighborhoods that are more off the beaten path.

Similarly, the city of Maricopa, Arizona, about 20 miles outside of Phoenix, is seeing steady permit growth during the recovery. "Generally, people are okay with the commute because the housing is so affordable," says Martin Scribner, AICP, director of development services for the city. "And it's a great little community."

Along with affordability, the town leveraged extra funds from the boom years to build new community amenities and infrastructure during the recession, including a state-of-the-art town hall, police substation, rec center, dog park, and stocked fish pond.

Amenities and educational offerings at Meridiana, a 2,700-acre master-planned community 24 miles from downtown Houston, make the longer commute worth it for residents. Along with the new elementary school are four educational labs, including the 60-foot Meridian tower solar observatory, which creates a sunspot at true noon. Courtesy Studio Schafer, Rise Communities.

At Meridiana, Rise Communities' 2,700-acre master planned community 24 miles from downtown Houston, the draw is also all about amenities.

Although strategically located near a new toll road and the Texas Medical Center, Meridiana, whose homes start in the $250,000 range, is still pretty far out of town. "The concept was [that] unless we build a package, a community that is worth the extra five- to 10-minute commute, then we haven't delivered on our mission," says Dan Naef, president of Rise Communities. "With that in mind, we have great amenities that appeal to all stages of life — fitness center, cafe, amphitheater, welcome center, a conservatory. But also we made an unprecedented commitment to education."

Along with donating land for the new elementary school, Meridiana includes four learning laboratories, outdoor spaces developed in conjunction with the school district with hands-on learning opportunities that tie directly into the K–12 curriculum. Covering everything from shapes to water testing to habitat studies, data collected in the interactive labs can be delivered to the school district's classrooms.

The most iconic of the four labs is the 60-foot Meridian tower solar observatory, the state's tallest. It creates a sun spot at true noon, while the amenity village is arranged so that buildings align perfectly along solstice lines.

"It becomes 'where do I want to live' versus 'closer,'" Naef says. "You build the best amenities and you build quality homes, and people will come to your community."

One amenity Naef sees shifting is the Welcome Center; as traffic to centrally located sales centers drops off, developers are designing them with an eye toward what they can become later. Also, they're becoming integrated into the community itself. At Windsong Ranch outside Dallas, for example, the sales center connects to a restaurant, pool, and fitness center. The sales center floor area could eventually morph into additional community space.

Events such as book clubs and wine events are becoming must-haves. "You create an atmosphere of 'I want to live here because it's fun.' And these things help you meet your neighbor and build community," says Naef. "We need to build community and infrastructure that enhance long-term relationships."

Filling in the closer-in suburbs

Still, not everyone is willing to make the trek, and it's often a market-by-market trend. "The buyers want to be where there's a sense of place," says Stumpf of the current vibe in Indianapolis. "Rather than having a commute, people are willing to spend more."

Though largely a suburban building company, David Weekley Homes is diversifying to include closer-in development through its "Central Living by David Weekley Homes" division created eight or nine years ago. In Houston, the division purchases boarded-up commercial properties or other infill sites, building 10 to 27 units an acre with diverse single- family detached houses ranging from $275,000 to over $1 million. Having a great land planner on staff is key, says Chris Weekley, division president, to ensure the smaller lots still work comfortably. Today 600 of the company's lots in Houston and 3,000 nationwide are through its Central Living division.

For Trumark Companies, the mix of locations likewise includes both suburban and closer-in development, in this case in Northern and Southern California. Wallis Ranch is a master-planned community of 806 homes in Dublin, in the Central Valley about 35 miles from San Jose. But, closer to the tech cores of Silicon Valley, it is also experiencing robust sales at smaller infill communities of 100 to 200 homes.

It's about understanding the buyer, says Garrett Hinds, director of architecture for Trumark. Like at Meridiana, amenities for Trumark's planned communities go up as commutes do. In Wallis Ranch, buyers find larger square footage, more bedrooms, higher ceilings along with downstairs bedrooms and more accommodations for guests and extended-family living arrangements.

Hinds agrees with others that a community building approach holds appeal for buyers. The clubhouse is considered an extension of the home, providing places for teens to study or small groups to gather. Wallis Ranch also has a working farm where residents can pick up fresh fruits, vegetables, and flowers on their way home from work.

The Cannery, a new community in Davis, California, by the New Home Company, finds a similar draw from the local-food movement. It's also built around a working urban farm and promotes a bicycle-centric culture deeply ingrained in the broader Davis mindset.

Closer in, "cities are demanding density," says Hinds of the Bay Area communities populated by Facebook, Apple, and other high-tech companies. And buyers need to be near BART rail stations. The company's Timber community in Newark, California, just across the water from Palo Alto, combines 84 three-story, detached houses and 80 three-story town homes, with vertical orientation that provides density without sacrificing key home features or size. The community won the Building Industry Association of the Bay Area's Community of the Year — Multi Product award this spring.

The variety being pursued by developers and planners is answering the diverse needs of buyers who now span three very distinct generations, as well as a housing recovery still facing its own set of unique challenges. The success stories from the close-in suburbs to the exurbs prove that only one thing is truly clear: One size doesn't fit all.

"It's a fun time to be a planner," says Stumpf. "Because things are happening, but it's not absolutely crazy. It's a time when people are looking at what works for the community."

Katy Tomasulo is a freelance writer and content marketer based in Seattle.