When I Get Older, Losing My Hair . . . .

When I'm Sixty-four!

Baby boomers are facing a big, and I mean very big, problem during the next thirty years: a serious lack of housing. When we reach a certain age we tend to have difficulties with the usual issues of home maintenance and care. We all have to face the fact that we just can’t do a lot of the things we liked to do once upon a time. And now we're looking at the clock a lot more and the bucket list and the whole issue of stairs and darker rooms, and seeing the buttons of the remote, and your kids saying things like, "Why do you have the TV so loud?"

To most of us the biggest issues are health, mobility, safety, and money. The usual course for most of us is to age in place, assuming that stairs are not a problem, you can afford trustworthy in-house health professionals, maybe a maid or a cook, and once in a while a chauffeur. Most of us aren't blessed this way and the kids have their own families to deal with. And besides, your preference isn’t to have them take care of you anyway.

More than fifty years ago Del Web built the first of the Sun City retirement communities, they became the model on which hundreds of other like communities and senior/active adult villages were built. Due to changes in the federal laws which allowed legalized discrimination based on age, these communities have continued to age, like boomers, in place. Many of these communities are now old and dated, the houses show the wear and tear of time and the facilities are too costly to maintain. And the new recruits – the Boomers - are now looking for something different.

By 2050 the number of Americans over the age of 65 will double from 40 million to more than 80 million. This age group is now about one in eight; in 35 years it will be one in five. Every year more people live to past 85 and there are more over the age of one hundred than anytime in our history. Other countries, such as Japan, are even worse.

Where will you live when you "retire?" In your current home? In a high-end retirement community? In a subsidized senior housing project? With you kids? There will be serious consequences to your family, your finances, your health, if you make the wrong choice. The biggest problems, right now, are the lack of choices with respect to housing – the retiree's biggest cost. It will soon become a buyers market, those with money will determine the market.

Believe it or not, one positive out of all this is that if significant numbers of homes and apartments can be built for this Boomer market, large numbers of existing homes become available to the marketplace. This is definitely a trickle-up scenario. Each year millions of Boomer residents will sell and move – freeing up housing. The problem right now is where can they buy/rent/co-own and move?

The over 65 market is growing and their need for housing is growing. The opportunities are huge but the development community is slow to the table. This housing model is different; the Boomer customer is more demanding, is better educated, more experienced, and is wealthier. It's a market not understood to many in publicly traded development companies. We all need a place to be happy and grow old and our expectations are not currently being met by the marketplace. And besides not everyone wants to move to Florida or Arizona.

This niche of housing requires land near population centers, high quality construction, facilities, recreation, and above all experienced management. It also requires new financing/cost models that allow this market to protect their equity and preserve their dignity. This cadre's biggest fear is that they will have more years left than money. Development companies that can create quality projects with long term guaranteed benefits and security will be the winners. City and towns will have to find ways of adjusting their fee structures, zoning and approval procedures to help move the project forward. We will need millions of these units over the next ten years and they need to be started now.

Stay Tuned . . . . . . .

The Next Five Years in Housing

.....so bright I have to wear shades!

There are over 70 million Baby Boomers and according to my fuzzy math, over 25 million Baby Boomers own homes. And during the next twenty years there will be a strong shift by these Boomers toward the retirement phase of their lives. Their homes will add to the inventory and their retirement will demand more but different types of new housing. This existing Boomer inventory normally has a higher and better quality than many of the recently foreclosed homes and is often in older second and third ring neighborhoods that surround American cities. While these units will help some of the housing need they cannot meet all the demand. We are a suburban nation; each successive ring of suburban growth supports the core. And like a tree, these rings of annual growth support the expanding tangle of roads and neighborhoods. Each part of this urban tree supports the others, and on much of the outlying branches and leaves is where new housing will flourish.

The government and the newest QE3 may help. The continuation of low interest rates at this critical time will support the housing industry. But it must stop sooner than later or it will fuel another round of housing inflation and “bubble time.” The rules of supply and demand cannot be overturned and the market is a cruel mistress. Waiting for the feds to make timely adjustments is like the referees this year in the NFL, they will make the call but it will take three long commercial breaks to resolve. Markets will drive the recovery in housing, but interest rates will have to rise at some point to dampen the exuberance. If not, we will ride that same horse again.

It is in the government’s interest to support housing. But when they begin to offer deals that even a wise thinking investor falls for than they have overstepped their role. Free money and low interest rates led us to much of the pain of the past five years. And none of us were immune to its call.

The government needs housing, especially new housing. It is the catalyst for the economy and like the auto industry is vital to the future of jobs and finance. The American economy is built upon the complex action of buying open land and converting it to a community of homes. Hundreds of thousands of jobs result. Social stability is created. Culture is nurtured. Dreams are fulfilled.

During the next five years there will be a gradual but very real upswing in new home construction. Every region will be different. I have always been a firm believer in demographics and it will be demographics that will drive this growth. Here is the Census Report from 2010, it will give you an overall snapshot.

What is shown in this report is the regional areas of the south and west grew substantially over the census period and, it can be assumed, continues today (though in California there may be some drop off). The key number is the 27 million new folks across the country. Back to my fuzzy math, this translates into the need for maybe 12-15 million more homes for families and singles. We have built since 2000 only 9.6 million new homes according to the Census (GO HERE). Obviously the ground is well prepared for growth, there is a market standing on the sidelines.

Another area of real growth: There are 1,750,000 college graduates per year. There are also over one million college dropouts per year. That translates into an impressive number of young adults looking for housing. How is this market being served? For many it has been their old bedroom at home. This will change. (GO HERE)

Housing is critical to the future of America. Like the auto industry (with its seven to ten year car life) there is a built-in obsolescence to housing. Currently somewhere around fifty years is the replacement cycle. But the technologies and the square footages of older homes, say pre-1970, are out of date. Electrical systems, wi-fi, heating and cooling, and most especially kitchens and bathrooms, all drive buyers into new homes. This is especially true for those in their thirties and forties. In fact I heard that the age when the consumer is at their prime is 46. That is the exact market for many builders such as Toll Brothers.

The next five years may be as exciting as any I’ve seen in my forty plus years in the housing industry. I am optimistic (one has to be in this profession); so the future’s so bright I have to wear shades!

Stay tuned . . . .

Home is Where the Heart Is

A Typical California Land Abuser

In last week’s newgeography (HERE) Wendell Cox pointed out that a survey taken by TD Bank (HERE) found that 84% of 18 to 34 year olds want to own their own home, and since that dream is impossible in most urban markets, that also means they want to move to and/or live in the suburbs. That crying you hear are the true-believers who honestly believe that the world will come to an end if we continue in our profligate suburban adventures. These crybabies currently run the California senate and assembly and have brought us all the fun laws such as SB 375 et all. This law is an attempt to push housing (i.e. Californians) into denser and denser neighborhoods, thus justifying fears about sprawl, inefficient mass transit, and air pollution. How any of these can be deflected by passing a law without forcing the costs of growth to rise is a head-scratcher.

Housing should not be an experiment. California cities and counties for almost a hundred years have been doing a reasonable job of managing growth and development. With very few exceptions they have dealt with the changes and the demands that success has forced on them by a growing population, delightful climate, energetic citizens and innovative companies. Now the state wants to have its say. And it’s scary.

While the current housing market is troubled, it is only temporary. The housing overhang is reducing and there is an obvious shift in choices by the residents, but you cannot allow the graph curve to drive long term policy. While apartments are currently in demand – that won’t be forever. Just like single family housing that was overbuilt for any number of real or imagined reasons, the curve will change. Markets are funny that way. But to pass laws based on a spot on a graph curve is just plain wrong. That means at some point later, on the same curve, another law will need to be passed to correct the earlier mistake. But then again that’s what politics is all about, I guess.

I have seen reports that the younger citizens want apartments and then they don’t, they want to live in the cities and then they don’t, they are staying single and they’re not. Mortgages scare them and they don’t. The Baby Boomers are moving out and no one can afford their homes, huge crises. Boomers are staying put and putting a strain on housing availability. Apartment prices are climbing and so are rents, then again fifty miles away they are not. The younger generation, in small towns, is leaving but then again when was that a new concept? To think you can lay a blanket of law over all this is not just foolish, but expensively foolish.

Growth is critical to small towns even when they fight it. A community cannot age in place like its residents; it must continue to reinvigorate itself. We all share in the benefits that our communities develop, theaters, libraries, farmers markets, street fairs, organized sports for kids and adults, senior facilities and the like. But the community must continue to evolve and accept changes in the marketplace. When the all-knowing state government comes in to make you change to their idea of Utopia, then we all have problems. Who does the community need to please – the state or the local resident? It also means that these state planners have too much time, staff, and money on their hands. A small step toward a more balanced budget?

Stay Tuned . . . .