Housing for the Generations

The housing market is the Mississippi River of the U.S. economy — a powerful force that historically carries the country out of recession.

But imagine if all the tributaries that feed the Mississippi River dried up at once. That’s the story of the housing market for the past five years. With­out streams of buyers, the market shriveled.

There are signs, however, that the waters are ready to rise. As buyers from three distinct generations — the baby boomers, generation X and the millennials — flow back into the market, they’ll release a surge of pent-up demand. The question is what kind of housing will each generation want — and how might their preferences mirror smart growth.

An intriguing place to start is with the peer personalities of each generation. “I think there is a big distinction between them,” said Carmen Multhauf, co-author of “Generational Housing: Myth or Mastery,” which she wrote with her late husband, Lloyd. “We know more about it now because we have so much more information.”

Multhauf’s book, which preps REALTORS^® to become generational housing specialists, compares each generation born between 1900 and 2000 — the G.I. generation (1900-1924), the silents (1925-45), the baby boomers (1946-64), generation X (1965-81) and the millennials (1982-2000).

The last three are the big three that will drive the housing market based on size and number of active years still ahead of them. The latest tally: 80 million boomers ages 46-66, 62 million generation Xers ages 32-45 and a whopping 85 million millennial ages 13-31, based on U.S. Census data compiled by RCLCO, a Washington, D.C. real estate consulting firm.

Multhauf, a REALTOR^® from Rancho Santa Fe, Calif., devotes a chapter apiece in her book to the peer personalities of each cohort and the forces that molded them. Among other traits, Boomers are idealistic, career-focused and feel entitled to the best. Gen Xers are pragmatic, time-conscious and put family and friends above their careers. Millennials — a.k.a. generation Y — are collaborative, inclusive/interracial and impatient about “paying their dues.”

Multhauf’s book came out in 2007, so some of her observations about peer personality and housing choices became instant casualties of the housing crash. For example, she noted that the “want-it-now” mindset of millennials helped make them the youngest first-time homebuyers of any generation — true enough until the crash turned that trend upside down. In the long run, though, each generation’s peer personality helps paint a picture of where many will prefer to live in the coming years, Multhauf said.

By choice or necessity, many workaholic baby boomers are postponing retirement and remaining in metro areas rather than moving to traditional retirement destinations. The family-first philosophy of gen X — a backlash against being the first latchkey kids — makes them conscious of balancing “space and time” as they wrestle with the large-home on large-lot versus short commute quandary. Although the peer personality of millennials is still a work in progress, their multicultural outlook attracts them to diverse urban neighborhoods more so than homogenous suburbs.

Different Life Stages

Gregg Logan, managing director at RCLCO, agrees that the era when people come of age factors into their housing preferences, but argues it’s risky to generalize about a cohort’s personality as if it were set in stone. Every generation’s personality is fluid, he says, and gauging it is like sticking your finger in a river. The temperature will be one thing upstream and another downstream according to changing ages, needs and resources.

“A lot of people want to say that these generations have totally different mindsets, but one of the greatest predictors of what people want … is where they are in their life at a particular point in time,” says Logan, who recently wrote a series of reports examining the generational/lifestage influences that will drive the residential real estate market as it recovers over the next 10 years. “One way of gauging that is to look at what happened with previous generations.”

Take generation X, for example. As young singles and couples, they led a resurgence in urban living because they wanted to be near the action, but as they’ve started to raise families, many are migrating to the suburbs “because that’s where they are in life,” Logan says. Even the size of a generation takes a back seat to lifestage in terms of driving housing activity. Despite belonging to the smallest of the three generations, nearly twice as many people in the gen X age range moved last year compared to boomers or millennials — largely because of their lifestage needs.

Logan describes a traditional lifestage trajectory as single, couple no kids, young family, mature family, empty nest and retirement. Are millennials likely to behave dramatically differently than preceding generations — especially gen X — as they move through those stages? Probably not, says Logan. A good barometer is their propensity to rent. When the oldest millennial hit 30 last year, the difference between their propensity to rent (69 percent) and the propensity of gen X to rent at the same age (71 percent) were nearly identical based on U.S. Census figures, says Logan.

When surveys show millennials display a greater appetite for urban living than current gen Xers, it seems to indicate a fundamental shift in preference, but that doesn’t tell the whole story, says Logan. “In considering their current preferences,” he writes, “we should bear in mind where they are in their lifestage: young and single (and some couples) and largely pre-family.

They will get older, marry and some will have kids. They will obtain more resources, their needs will evolve, and they’ll likely make different housing choices.”

Suburbs Still a Top Choice

The 2011 National Community Preference Survey by the NATIONAL ASSOCIATION OF REALTORS^® paints an interesting picture of where people want to live by generation. Yes, millennials prefer to live in the city more than any other generation, but the greatest percentage of millennials want to live in the suburbs. The preferences for people 18-29 (millennials) were 42 percent suburban, 31 percent city and 25 percent small town/rural. The preferences of those ages 30-39 (gen X) were 47 percent suburban, 34 percent small town/ rural and 18 percent city. The preferences of those ages 50-59 (boomers) and 40-49 (boomers and gen X) were in a virtual dead heat at 47 percent small town/rural, 38 percent suburban and 14-15 percent city.

Those numbers suggest that the preponderance of millennials — the largest generation in U.S. history — are choosing the suburbs as they form households and — if they follow the same trajectory as generation X — will do so at an even greater rate as their lifestage changes. The catch is that the kind of suburbs they want — walkable, transit-oriented, mixed-use — are vastly outnumbered by the kind they don’t — sprawling, single-use and far from employment and activity centers.

“Much of that product is locationally obsolete,” Logan says. “Convenience is the new amenity. What they’re looking for is a more convenient suburb. That’s the top choice of all generations.”

It’s also an endorsement of smart growth. The Community Preference Survey bears that out. The survey asked people to choose between living in Community A — all single-family homes on large lots, no sidewalks, little public transportation — and Community B — a variety of housing and businesses, more sidewalks, nearby transportation. People preferred Community B — the smart growth option — by a 56 to 43 percent margin. Millennials and baby boomers — the nation’s two largest demographic waves — showed the strongest preference for the smart growth option as 62 percent of those between 18-29 and 58 percent of those 60-plus chose Community B.

The thing to keep in mind about the boomers and the millennials is that “they’re such big groups that even small shifts will have a big impact,” says John McIlwain, senior resident fellow and J. Ronald Terwilliger chair for housing at the Urban Land Institute.

The other thing to keep in mind is that they’ve been in suspended animation for various reasons — largely beyond their control. “Generation Y is held back because of the economy, lack of jobs and $1 trillion in school debt,” says McIlwain. As a result, many are living with their parents, suppressing the rate of new household formation. Meanwhile, many boomers — especially the younger half of the cohort — are stuck where they’re at because their homes are underwater and the next generation of move-up buyers — gen X — is relatively small.

So what happens as market conditions change and those two groups become active in the housing market again? McIlwain, author of the 2010 report “Housing in America: The Next Decade,” concludes the demographic stars are aligned to reurbanize American suburbs. “Many factors are converging to shift housing markets from the traditional American cul-de-sac suburb to a more urban lifestyle,” he writes. “The coming decades will be the time of the great reurbanization as 24/7 central cities grow and suburbs around the country are redeveloped with new or revived walkable suburban town centers.”

Shrinking Household Size

Arthur C. Nelson, director of the Metropolitan Research Center at the University of Utah, says the shrinking number of households with children is one of the most important trends related to generational housing preferences.

“The number of households with children is going to be coming down until it’s in the 20 percent range and stabilizes there for as far as my eye can see,” Nelson says. “If we’re building homes for families with children, we’re missing the boat.”

The share of households with children fell from 45 percent in 1970 to 33 percent in 2000 and is projected to dip to 29 percent by 2030, according to Nelson. While the total number of households is expected to grow by 20 percent to 140,456,000 between now and 2030, households with children will account for just 10 percent of that growth.

That means 90 percent of the growth is coming from households without children. At one end of the spectrum, millennials are having children later while boomers are increasingly becoming empty-nesters. That’s producing a disconnect between housing preferences and the housing supply.

Among homeowners, Nelson’s research shows that only 25 percent of Americans want a home on a large lot — often the leading choice for people raising families — yet that type of housing accounts for 43 percent of the supply. Meanwhile, 37 percent of Americans want to live on small lots, but that type of housing accounts for only 29 percent of supply. Another 38 percent want to live in attached housing, but that accounts for only 28 percent of supply.

Those numbers suggest there’s little need to build more single-family housing on large lots — the traditional suburban pattern. Infill and redevelopment — cornerstones of smart growth — are Nelson’s prescription. One of his pet strategies: Convert distressed suburban McMansions into multifamily housing to meet growing demand for rentals as homeownership rates continue to slide. Converting McMansions would also meet the rising need for multigenerational housing. “If we can find a way to retrofit the suburbs, that’s how we’ll meet demand,” he says.

That could also be how the country shifts its economic engine back into high gear, says Christopher B. Leinberger, a land-use strategist and researcher. The convergence of two huge generations — the boomers and millennials — with similar appetites for compact, walkable, mixed-use communities creates an enormous rebuilding opportunity based on smart growth. “This could be the economic foundation of the country for the next 30 years,” he says.