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

Demographic shifts, changing preferences and accelerating energy costs will change the metro region.

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

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.

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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.”

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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.