Housing market makeover: Some big changes coming to the Twin Cities

MinnPost photo by Corey Anderson
America has 20 million houses on small lots, but in 20 years, there will need to be 30 million more.

Looking into the future, there’s gonna be a whole lotta shakin’ goin’ on in the housing market.

OK, maybe not shaking so much as reshaping. Demographic shifts, changing preferences and accelerating energy costs may combine to make that American standard — the single-family house sitting by its lonesome on a hunk of land in an all-residential neighborhood — not obsolete perhaps, but no longer the default option for every household.

That was the broad message delivered by two housing experts who spoke this morning at a gathering called “Housing Choice: an accelerator of regional economic competitiveness,” sponsored by the Metropolitan Council; the Minnesota branch of the Urban Land Institute, a group of development movers and shakers; and the Regional Council of Mayors.

In introducing Arthur Nelson, executive director of the Metropolitan Research Center at the University of Utah, and Melina Duggal, a principal with RCLCO, a real estate advisory firm headquartered in Washington, D.C., Met Council Chair Susan Haigh proclaimed that we need good housing to attract and keep the talented people who will make our cities successful in the global yadda, yadda, yadda. She may be right, but you’ve probably heard the argument before.

Nelson, who is the author of “Megapolitan America: A New Vision for Understanding America’s Metropolitan Geography,” (and, by the way, he designates Twin Cities as one of 23 megalopises that will fuel the nation’s growth) blitzed listeners with a batch of population changes coming in the next 20 years.

Rather than drown you in numbers, here are the highlights: About half of new population growth (about 4 million between 2010 and 2030) will come from what he calls “the new majority,” in other words, people we now call “minorities.” Some 46 percent of the pop increase increase will be people over age 65. Families without children will comprise 85 percent of the growth in households.  

New housing preferences

New household configurations spell new housing preferences. Back when the standard family was a married couple with a couple of kids, the obvious choice was a roomy single-family house. But Americans are supposedly downsizing their preferences along with their households. Industry surveys and his own analysis, says Nelson, now show that about 38 percent of Americans want to buy or rent an attached unit, say, a townhouse or an apartment; and 37 percent say they prefer a smaller lot.

Those changes may lie partly in finances. Since the collapse of the housing bubble in 2008, banks require homebuyers to make 20 percent downpayments — so they have to scale back their dreams. And, with energy costs due to rise by about 10 percent a year compounded, by Nelson’s calculations, fewer people want to heat large homes — or travel to those in far-flung suburbs. (Apparently, builders haven’t received the message. The latest information  from the Census Bureau shows that the average size of a new house is 2,505 square feet, a little short of the all-time high reached a few years ago.)  

What people want, however, doesn’t match up with the housing stock we’ve got. Nelson projects that by 2030, there will be demand for nearly 60 million attached homes, although the current supply is only about 33 million. Similarly, we have 20 million houses on small lots, but in 20 years, there will need to be 30 million more. And America currently has about 28 million more homes on large lots than the market demands.

The mismatch could lead to what Nelson calls “the great senior sell-off” with elderly people stuck in large houses that nobody wants to buy. (He expects the glut to set in starting in 2016, though others say 2020.) I asked him if prices for those unwanted houses wouldn’t simply drop so far that somebody would buy them. He answered that in areas of economic decline, like Buffalo, N.Y., or western Pennsylvania, “nobody will want to buy them. People will walk away from them or burn them down.”  

On a cheerier note, Nelson showed us a slide of a semi-defunct strip shopping mall fronted by an ugly parking lot. He had labeled it “The New Promised Land?” Buildings on many of these sites are now 40 and 50 years old, he pointed out, and worth less than the land they sit on. The properties are large and flat, generally on highways accessible to buses or other forms of mass transit.

In a variation on the old Joni Mitchell lyric, he urged developers to “Tear up a parking lot to rebuild paradise.” It wasn’t clear what he had in mind for paradise — I was thinking maybe houses on smaller lots or apartment buildings, but maybe he’s anticipating a demand for new commercial space. Those empty parking lots and decrepit big boxes, he declared, provide the opportunity “to reconfigure metropolitan America along transit-ready corridors and nodes.”  

‘Mixed use’

Melina Duggal of RCLCO brought some insights that I had never heard before. Her company’s surveys show that overwhelmingly people want a single-family detached houses. But many of them, particularly families and older people, would like it to be in a walkable neighborhood that gives them access to what developers call “mixed use” — and what you and I refer to as stores, restaurants and schools.

That hardly translates to the downtown renaissance many planners have been praying for. About 30 percent of both buyers and renters want that neighborhood to sit in a “suburban mixed” area, which Duggal refers to as “urban light” or “safe urbanism.” She added, “Downtown is too gritty and edgy for them.”

My interpretation: They would like a Disneyland version of a city with cute stores and restaurants but without the noise, dirt, traffic and members of the new majority milling around.  

All those adorable little stores, however, face a struggle for survival in an environment where residents can order from Amazon or drive a couple of miles to their favorite big-box stores. Dugall suggested that developers look on commercial space in their buildings or complexes as “loss leaders,” similar to an amenity like a swimming pool or a clubhouse. In other words, they would have to provide the space at a discounted rent. Of course, doing that can undermine the financial viability of a project, and Duggal warned developers not to overdo the commercial stuff.

Like other forecasters, Duggal notes that the rental market has gained, especially among the risk-averse who fear sinking their money into what might become a depreciating asset. Young people without kids are the obvious prospects for rentals, and they are willing to trade off space for a prime location. But providing what they want — a classy-looking crib near all the right clubs — at a price they can afford is not exactly easy. One solution may be tightly sized two-bedroom apartments (to allow for a roommate) with large common areas where residents can gather and socialize and even dine on food from neighborhood eateries.

Marketing to empty-nesters

She also advocates marketing rentals to empty-nesters who want maintenance-free living but may face a scarcity of condos. Financing has been difficult to come by, and many developers prefer building apartments where they don’t face potential construction-defect lawsuits from buyers. Pushing rentals to older people is a hard sell, however, since most of them have been owners for their entire lives.  

Other points the speakers made: There may be a demand, especially among large Hispanic and immigrant families, for housing that accommodates multiple generations: grandma, parents, adult children and maybe their kids. Remember that old TV drama “Dallas”? The whole dysfunctional brood lived with Jock and Miss Ellie at Southfork.

“Graceland” — a new TV series in which top FBI, DEA and Customs agents (who also happen to be young, buff and horny) are forced live together in a Southern California beach house to conduct an undercover sting — suggests another possible future housing arrangement: unrelated people sharing a house.  

If such arrangements become more popular, those big suburban homes may be saleable after all.

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Comments (11)

  1. Submitted by Neal Rovick on 06/07/2013 - 10:55 am.

    There are relatively more factors that argue for lower home ownership rates than higher:

    * Flat or falling incomes.
    * Very low savings rates.
    * Less job security makes buying financially risky.
    * Less job security requires geographic mobility.
    * Big college/auto/credit card debt makes buying difficult.
    * Many more permanent drains on income than before (cells, cable, internet, etc)
    * Increasingly urban population typically owns fewer houses.
    * Fewer people know how or are willing to take on home maintenance issues.
    * Many more fun things to do than lawn-mowing, snow shoveling, etc.
    * Highly visible property tax costs.
    * Down-side risk of house values now well-known

  2. Submitted by Jim Erkel on 06/07/2013 - 10:59 am.

    Surveys and Realities

    I find preference surveys sometimes misleading because they ask where you’d like to live, not where can you afford to live. Looking at it in a transportation context, if you asked me what kind of car I’d like, I would say the new 2013 Mustang — red with a black convertible top. However, there is no way I can afford that kind of machine. Considering my needs rather than my wants, I settle for a next best option — a fuel-efficient 2005 Toyota Matrix and a Go-To Card from Metro Transit.

    Back to housing choices, I’m sure many people would like to live in a small town but there are many economic and non-economic reasons why they can’t so they have turn to next best options. The question is whether the surveys reflect any of this calculus or if it will only amplify the shifts in preferences that the presenters pointed out.

    The Metropolitan Council is revising its Regional Development Framework to extend its planning effort out through 2040. The Council has heard about the shifts many times as it has moved forward with the revision, called Thrive MSP 2040. The Council will need to decide on its own form of next best option because a business-as-usual approach of serving low-density development at the urbanizing edge not only can’t be sustained but also doesn’t match well with the shifts in preferences, the projected need for single-person households, and the considerable loss of wealth in existing households. The Council will need to help all communities adapt to the coming changes but in particular will need to persuade developing communities to see that the future ain’t what it used to be.

  3. Submitted by Matthew Steele on 06/07/2013 - 11:08 am.

    Time for incrimental infill: accessory dwelling units and next-step-densification on SF lots.

  4. Submitted by jody rooney on 06/07/2013 - 11:46 am.

    The Met Council “Help”?

    You know I haven’t ever heard a local government say that the Met Council has “helped”.

    But then again I live in Washington Country who would probably really not prefer to be associated with the urban center.

    Good news though. You can purchase seven homes for under $70,000 in Sandstone Minnesota.
    They have a hospital, a good economic base, a grocery that rivals a Kowalski’s (well maybe not the Woodbury Kowalski’s but certainly White Bear’s) low taxes, great out door recreation opportunities, first class entertainment just down the road and 4 good sized employers, an active school district and great senior housing and high speed internet. So if you aren’t wedded to cafe society it seems like just a better place to live than Minneapolis or St. Paul.

  5. Submitted by Arvonne Fraser on 06/07/2013 - 01:06 pm.

    and David Brooks says cities are the creative, exciting places..

    Harris’ article combined with David Brooks’ column in today’s NY Times, “The Power Inversion,” cheer those of us who like cities. Citing various new studies, Brooks concludes that cities are the creative, exciting places while Washington and state governments are paralyzed by partisanship and dysfunctional.

    Change is hard, but it’s inevitable and can be stimulating. In our current city election, we ought to be asking candidates for their ideas on how Minneapolis can become more dense and still keep much of its substantial housing from ending up in landfills. My suggestion would be to encourage renovation and conversion, especially of large older homes on big lots into duplexes, triplexes, fourplexes and applaud the increasing use of public transportation. Metro Transit’s Go To cards are a real deal. I know one former mayor, formerly wedded to his car, who is discovering buses are a far more interesting and cheaper way to get to meetings downtown or at the university and back and seems proud of his new-found skill in learning routes and timetables.

  6. Submitted by Ray Schoch on 06/07/2013 - 01:24 pm.

    Stereotypes don’t help

    For a change, I’m kinda with Mr. Rooney. I spent 50+ years in a small ‘burb of St. Louis. Hated the climate, but the city of 20,000 or so was fine. Be that as it may, the absolute best housing/amenity situation I’ve personally encountered was the 5 years I spent in a city of about 60,000 that’s the Colorado equivalent of St. Cloud. Too conservative politically to suit me, but in most other ways — housing value, entertainment, “walkability,” proximity to natural areas (the city has its own parks, but is also no more than a 40-minute drive from Rocky Mountain National Park), multiple employers, web and cable access, a genuinely thriving art scene, etc. — it was as close to ideal as I’m likely to get. As an old guy, I increasingly appreciate (meaning mourn its loss) the fact that my house there was truly single-level, with everything, including laundry facilities, accessible without stairs.

    An hour removed from the big city, I could go to Denver if I wanted to, and stay home if that suited me better.

    Unfortunately, the grandkids are here, and while my city lot is smaller, my current house has plenty of stairs and, as I’ve bored readers with previously, it sits in a neighborhood with virtually none of the amenities that are supposed to make urban life tolerable. The sole exception is access to a natural area, for which I’m more than a little grateful to future-minded city and county officials of a couple generations ago. Otherwise, there’s nothing here but houses, so in terms of culture, shopping (both frivolous and for necessities like food), and so on, the area where I live is more or less the antithesis of “mixed use.”

    As an aside, I believe Ms. Harris deserves some chastisement for her characterization of those who prefer “urban light” as essentially racist yuppies. That sort of negative stereotype does nothing to make her arguments more persuasive. I’m rather far removed from yuppie status in both income and age, but It’s not the members of the “new majority” that concern me. I get along pretty well with neighbors of every hue, which is to say that my neighborhood has plenty of racial and cultural diversity, and I’m fine with that. I’m also fine with density. I’ve lived in rental apartments and owned a condo, and those living arrangements can likewise meet people’s needs just fine. That said, even if I were renting an apartment or buying a condo, I’d only live downtown if coerced, and that’s precisely because of the noise, dirt and traffic, not to mention the lack of green space. The “Lake District” southwest of downtown is far, far out of my price range.

    In a housing context, the financial arguments of some continue to puzzle me. I’ve never bought a house because I expected to make money on my “investment.” I buy a house to protect me from the weather and provide a relatively safe haven from the stresses of modern life, and because in most ways, it’s less expensive than renting. Duplicating my current space, including taxes and maintenance and insurance, would cost me hundreds of dollars a month more if it were a rental property. Taking away the mortgage interest deduction might change that equation, but right now, ownership is the most economically-sensible way for me to live. When I get so old that I can no longer use an art studio or climb stairs, then I’ll have to consider renting something, but until then, I prefer the small house on the small lot in the small city. At the moment, I’m willing to settle for two out of three…

  7. Submitted by Pat Berg on 06/07/2013 - 01:27 pm.

    Renters

    Until society quits treating renters like second class citizens, it is going to remain a hard sell.

  8. Submitted by Randall Ryder on 06/07/2013 - 01:35 pm.

    Housing Patterns May be Influenced by Social Events

    Isn’t this the obvious? Indeed won’t young, childless individuals or couples prefer to live in the city in smaller homes with common grounds or recreational facilities? Won’t individuals with children prefer an environment where there is less crime and more open space? I see the changes more in terms of how younger adults will choose rent an apartment rather than buy a small home or condominium die to the debt of college, higher interest rates, lower paying jobs, and an increased sense of mobility.

  9. Submitted by Vici Oshiro on 06/07/2013 - 10:54 pm.

    housing patterns

    Some of the changes suggested are already happening. In Burnsville, a nearby strip mall is now a senior care facility with both independent and assisted living options and a mix of subsidized and market rate units.

    With some rezoning our house could easily become a duplex. This is probably true for lots of other suburban homes.

  10. Submitted by Jon Kingstad on 06/09/2013 - 04:56 pm.

    Questions unanswered.

    Interesting article. But it seems to me this article is about some experts with some interesting data about the possible future, but who can not answer the questions to the problems right here and now.

    Ms. Harris asks at least one question which the expert, Mr. Nelson, did not answer. Or he has no answers or recommendations.

    “I asked him if prices for those unwanted houses wouldn’t simply drop so far that somebody would buy them. He answered that in areas of economic decline, like Buffalo, N.Y., or western Pennsylvania, “nobody will want to buy them. People will walk away from them or burn them down.” “.

    Okay. But what about areas which are not in decline? We’re seeing this today with tens of thousands of foreclosed homes sitting vacant. Prices aren’t coming down. We’re still in the depression, as some call it, from the 2008 financial meltdown which featured record foreclosures. What has happened to housing and land prices since then? This is a problem which organizations like the now defunct ACORN challenged by simply encouraging people to squat and live for free. This conduct elicited angry and harsh responses, especially from the bankers who owned the properties who evicted the squatters. As far as I know, the banks are more intent on having the properties deteriorate abandoned than let any living human being occupy them. Are we facing a future in which we have literally tens of millions of people, who, if not homeless, are simply unable to afford to live in homes that do not cost half of their earning capacity?

    And what about all those vacant, disused strip malls. These eyesores are a blight on the land, all over the country. They are, as Ms. Harris points out, worth less than the land they sit on. Mr. Nelson suggests developers tear them down and replace them with shiny new ones. Good idea. I wonder why nobody ever thought of that before?

    Finally, there’s the question of rents. It’s more complicated than the stigma of renting which does exist. This stigma is reflected in the lack of sufficient available affordable decent rental housing. Having recently transitioned from homeownership (which I’d paid off a number of years ago) to renter status, I was shocked to learn how much my housing will now cost me. I live in a decent enough place but it should cost half to a third of what does every month. I’ve learned the rental market has gained from people like me, as Ms. Duggal states, because of those selling their homes and not wanting to buy. So the owners of the insufficient numbers of rentals made out in this financial crisis. Just why is that?

    Now we do not have a truly free market in real estate or land. We regulate land use and availability with zoning, highways, sewers and any number of ways seen and unseen. I would expect in a free market, temporary shortages will drive up prices until demand attracts new investment and creates greater supply to bring prices down. This does not happen in our ;and system. We’ve seen for years how rents in the commercial rental market have stayed stuck at the same levels for years despite an oversupply of vacant space. I expect the same thing is going to happen with rentals and rental units.

    I would hope and expect that our leaders, including those on the Met. Council, would be looking for answers to these questions and not bringing in highly paid out of town “experts” to raise more, and in some cases, irrelevant, questions when we don’t have any satisfactory answers to the ones we already have.

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