We often work with our homebuilder and apartment developer clients in helping to identify the highest and best residential use for a particular property, culminating in recommendations as to whether to offer for-sale vs for-rent homes, attached vs detached product, optimum bed/bath counts, number of stories and parking. Our recommendations are market-based, derived from a combination of inputs including attributes of the site itself, the performance of market comps, interviews with sales and leasing agents, and economic and demographic trends. A recent demographic trend is having major implications regarding near-term housing market demand and what housing products are best suited to address this trend.
Rachel Wolfe of the Wall St. Journal (WSJ) recently authored an insightful article titled “Why Americans Aren’t Having Babies.” According to Wolfe, “Americans aren’t just waiting longer to have kids and having fewer once they start—they’re less likely to have any at all.”
According to the U.S. Census, there were only 3.596M babies born in the U.S. in 2023. That’s a lot of newborns; however, that is the lowest number of births in one year since 1979—a stretch of 45 years. During the decade of the 2000s, there was never a year with less than 4.0M births.
The prevailing wisdom ten years ago was that Millennials (born 1981 to 1996, now 28 to 43 years old), who were delaying marriage and childbirth, would behave as generations had before them, and eventually start reaching those milestones, just a bit later in life. To an extent, this has largely been the case, and first-time buyer Millennials with young children now represent a sizable chunk of the new home market. However, what comes next with the youngest Millennials and with upcoming Gen Z (born 1997 to 2012, the oldest of which are already 27 years old) may be quite different.
More telling, the “crude birth rate” (the number of births per 1,000 women) was just 10.7 in 2023 – the lowest in the entire history of the U.S. Yes, the lowest since the founding of the country.
Increasing numbers of households are like Beth Davis and Jacob Edenfield, a married Millennial couple who aren’t having children. Davis told WSJ reporter Wolfe, “People told me when I was younger, ‘Oh, you’ll grow into it…you’ll want to start a family,’ and that just did not happen.” The couple, who earn a combined $280K/year, rent a townhome. They dine out at upscale restaurants, work-out at a high-end wellness center and recently paid cash for a BMW.
So, what does this mean for the housing market? At a high level, it means LESS demand for large family-oriented homes, less demand for extra bedrooms, and less demand for conventional single family detached homes. On the flip side, it means MORE demand for homes geared to childless households, more demand for homes with fewer bedrooms, and the opportunity for homebuilders to push densities. This could all be a good thing.
Going forward, particularly in high-cost states like California, where housing affordability is near record lows, we are recommending that our clients consider developing more product geared towards households without children, meaning more attached product (both for-sale and for rent), including not just side-by-side townhomes, but stacked flats as well, and smaller size units in both the rental and for-sale markets. For rentals, we’re looking at studios in the 400 and 500 sf range, up to two-bedrooms in the 700 to 900 sf range. For for-sale homes, the “sweet spot” for townhomes is typically in the 1,200 to 1,600 sf range, while stacked flats is more typically 600 to 1,400 sf. We are exploring other new concepts as well.
Clarity Real Estate Advisors provides answers to all of your real estate market feasibility questions. Our clients include public and private homebuilders, apartment developers and operators, private equity investors, land bankers, pension funds, bond issuing agencies, and the public sector. Our goal is to help you make the best market-based decisions. We provide Clarity