Housing Trends: Development & Investment Prospects in 2016

With 2016 around the corner, it’s about that time to thumb through the annual edition of Emerging Trends in Real Estate recently released by ULI and PwC.

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Honing in on the discussion around housing: residential land development is considered a “best bet” over the next three years; not to mention the U.S. had the most construction activity in housing this past summer 2015 since 2007.

The report ranked the nine residential property types for development and investment prospects (from excellent to abysmal) in the U.S. for 2016, which are ranked almost identically (see image).

 

Senior housing and urban infill rank as the top development and investment prospects. Over the next few years, the recent peak levels of Millennials and Baby Boomers will place dramatic impacts on housing needs and decisions, which accounts for the prominent focus on these two property types.

 

1.     Urbanization and Urban Infill:

There is increasing market demand by Millennials and families alike for walkable cities, as well as the revitalization of downtowns. Cities in secondary markets—medium-sized cities like Austin and Portland—are capitalizing on infill development to increase urban density while still maintaining a relatively low cost of living to attract talent.

 

2.     Senior housing:

Baby Boomers, the second largest generation in America, are retiring and living longer than previous senior generations. Therefore, growing demands for senior living options rank at the top for both investment and development prospects.

 

3.     Rentals:

Single-family rentals made the top nine prospects for 2016, but were not even on the list in 2015. Many who face the strains of housing affordability consider renting their best alternative. However, for Millennials, renting can offer flexibility while others prefer to rent luxury to match a preferred lifestyle. Nevertheless, overall homeownership has declined across all generations, most significantly those under 45 years old.

 

4.     Affordability Crisis:

With affordable/workforce housing listed as an “unfavorable” development and investment prospect in the face of steadily increasing housing prices and slow wage growth, we will likely continue to see an affordability crisis. As of now, the American Community Survey (2014) found that almost half of U.S. renting households pay 30% of their income—the standard benchmark for what’s considered affordable—or more in rent; and, half of those are paying 50% or more of their income in rent. Technically, these renters are living in housing considered unaffordable.

Through the ups and downs of market cycles, trends and prospects are subject to change. But, as our populations continue to grow, evolve and age, different demands will surely be placed on housing.