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Aging boomers looking to downsize; young are seeking affordability, convenience

It will be years before the housing market resembles its former self, and even then the dominant demographics and lifestyle patterns of the last half-century won't be coming back. Minneapolis-St. Paul's next market will be pent-up and bipolar: aging baby boomers looking eagerly for smaller homes (if they can afford to unload their bigger ones); and young people, without the secure jobs of the past, looking for bargains and convenience.

Those were among the observations delivered to developers, planners, architects and real-estate brokers attending this week's Sensible Land Use Coalition gathering in St. Louis Park. With housing activity still on pause at least until 2014, builders have plenty of time to study the next market.

"They're trying to figure out the new normal," said John Shardlow, a principal with Bonestroo, a Roseville-based engineering/design firm.

Here are some trends to expect:

  • Aging boomers on the prowl. Aging is the overwhelming demographic swing — less a wave than a human tsunami. The biggest generation (aged 47 to 65) finds itself trapped in "too much house" as falling prices and weak demand have spoiled a hoped-for transition to smaller digs. Boomers will either have to "age in place" or swallow hard and sell their big suburban homes for less than they had hoped for.
  • Young people — including rapidly rising numbers of ethnic and racial minorities — looking for housing but lacking the income stability of past generations. Most are seeking traditional single-family homes but with smaller footprints and locations that are close to destinations. A substantial number, however, don't consider houses wise investments and would rather rent apartments with amenities while spending their money on other pursuits.
  • Inner suburbs with big advantages. Those trends appear to favor the inner suburbs — communities like St. Louis Park, Richfield, Bloomington, Maplewood and Roseville. They contain a huge stock of postwar ramblers at reasonable prices, nearly all of them located a short drive away from shopping and job opportunities. They also tend to have a mix of housing types (apartments, town houses, etc.) attractive to both the younger and older market.
  • The central cities and outer suburbs with major drawbacks. Minneapolis and St. Paul have a full array of housing choices and an extremely attractive stock of older, smaller homes that fit the emerging market. But many of those homes carry price tags too high for the bulk of new buyers, and the perception of bad schools will keep many younger buyers from considering city life. The best prospect for the central cities probably lies in the downtown rental markets and transit-oriented development (TOD) projects. The outer suburbs have a greater challenge. Sprawling subdivisions of large single-family homes requiring long drives to jobs and shopping aren't a good match for the emerging market. High rates of foreclosures already beset many edge communities, and a lack of variety in housing types will further hurt their prospects. Dakota County offers an exception; its flexibility in offering a mix of housing types will pay off in the next market.
  • Renting as a more popular alternative. Unlike in, say, New York or San Francisco, renting in MSP has carried a stigma. That may change as the market begins to turn over. Young people have less stable incomes than in the past and many are skeptical about home ownership as an investment. A considerable segment is also attached to urban lifestyles that, in turn, may offer attractive options for renters. Overall, residents are now far less able to afford homes than a just few years ago. In 2002, 22 percent of Minnesotans paid more than 30 percent of their income for housing; by 2009, 34 percent were in that predicament.
  • The problem with aging in place. Stability might seem like a positive attribute, but communities need a certain amount of turnover to energize civic life and upgrade the housing stock. There's a downside to boomers staying in their single-family homes: fewer opportunities for young families; deferred maintenance on homes; a likely decline in property values and tax base; a drop in the demand for nearby restaurants and other retail establishments; political opposition (often from older folks) to changes that might make communities more competitive. Adding sidewalks, for example, or allowing "granny flats," or building mixed-use or multifamily housing is often difficult in communities dominated by older voters.

These and other trends were described by Craig Helmstetter, a researcher with the Wilder Foundation's Minnesota Compass project; Cathy Bennett, a housing specialist with the Urban Land Institute-Minnesota; and John Carpenter of Excensus LLC, a Lakeville research firm.

They offered a bundle of statistics to support their conclusions. Helmstetter outlined the severe impact that the recession has had on the housing market: a 34 percent decline in annual home sales since 2004 and an 82 percent drop in building permits.

As for demographics, Helmstetter chronicled the increasing dominance of suburbia as well as the two big population shifts. The number of metro residents over age 65 will double by 2030. And the number of racial and ethic minorities will continue to rise. People of color now account for nearly 20 percent of the metro population. That's modest by national standards but a big change for MSP. Over the last decade, the minority population has grown 4.5 times faster than the white population. Meanwhile, large gaps persist between whites and non-whites in income, educational achievement and home ownership. Nearly 80 percent of white householders own homes compared to less than half of minority householders. The 34-percentage point gap is among the largest in the U.S.

Smaller projects, smaller homes
One thing that the sea of data doesn't tell developers is the nature of the existing housing stock, said Bonestroo's Shardlow. The styles of homes built in the '50s and '60s aren't attractive to today's younger buyers, he said. Programs to retrofit them have met limited success, he said, adding that some older suburbs may have to try harder.

Whatever the case, developers are likely to look for smaller projects with fewer risks in the years ahead, he predicted.

Developer Bob Engstrom of Robert Engstrom Companies agreed. Known for spacious projects in natural settings, Engstrom said he's planning smaller infill projects with smaller homes. "Now is a good time to figure out where the market is going," he said.

ULI's Bennett offered what might be the biggest challenge ahead: "Can developers build smaller infill homes close to services at an affordable price?"

Here are the presentations by Bennett and Helmstetter.
 
Shape of the national housing market
Zillow.com reports that homes in Minneapolis-St. Paul lost 9 percent of their value in 2010, compared to the average 5 percent loss nationwide. Richard Florida writes on The Atlantic's website about the even nature of the national housing market. Home values in Boston, San Francisco and San Diego actually rose last year, while values in Miami, Atlanta, Phoenix and Detroit took hits of more than 10 percent.

Keeping Gen Y in the suburbs?
Millennials aren't impressed by McMansions, according to the Wall Street Journal. "Here's what Gen Y doesn't want," a recent report begins. "Formal living rooms, soaker bathtubs, dependence on a car." Read the full piece here.

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Comments (2)

As a 30+ year resident of the Twin Cities area, the changes that have taken place in that timeframe are obvious and significant. Moving ahead, two things seem apparent:

- Expanding the MUSA line may no longer be necessary and/or cost-effective, given the current stock of housing available inside of it. Limited public resources would probably be better spent on maintaining and upgrading existing infrastructure.

- Expanding (perhaps even maintaining) public transit will be a challenge. In my own case, I can walk to a relatively new park and ride near my house to catch an express into Minneapolis. The problem is, I work in St. Paul.

Thank you for this excellent information.

Unfortunately, the cuts to Local Government Assistance has also resulted in significant property taxes especially in the core cities of St. Paul and Minneapolis.

Further such cuts impact the two core cities ability to maintain services as other cities--snow removal, etc. If 50 and over boomers are returning to the core cities, then we need to make sure the transportation options are there for them as they age.