Emerging markets for custom homes.
The baby boomers have made custom builders' lives easy. By entering the world in such great numbers and then pros-Tpering beyond their wildest dreams, they've grown into a ready-made market for luxury housing. Their desire for an upscale lifestyle has spawned entire product lines and industries that simply didn't exist during the “Greatest Generation” years. And the media never tires of chronicling the effect boomers continue to have on cultural and social trends. Even without all the hype, though, the mentality of those born in the United States between 1946 and 1964 would be no secret to custom builders—the majority of them are baby boomers themselves.
But this fabled, 78.3-million-strong generation isn't the only custom home market around. Generations X and Y are hot on their heels, and combined they number 124.6 million, over one and a half times the size of the baby boomers. In addition, immigration is positively affecting all segments of the housing market, including the high end. According to a Fannie Mae Foundation Census Note published in October 2002 by demographer John Pitkin, immigrants accounted for one-fifth of all new homeowners nationwide during the 1990s. Builders who ignore these powerful demographic groups risk missing the opportunity to tap into markets that could sustain them through dry spells and inject new life and staying power into their businesses.
These markets aren't always obvious—that's the beauty of them. A builder who learns to address their needs will have the edge over competitors who only have eyes for the baby boomers. Take Generation Y (born between 1980 and 1995), also known as the echo boomers. More than 65 million Yers exist, and, though the oldest are only 23 years old, their sheer numbers represent massive potential to purveyors of any luxury product. “Gen-Y is the single most important demographic factor,” says M. Leanne Lachman, a principal at Lend Lease Real Estate Investments in New York City. “They'll drive markets in the same way the baby boom has. That's what's really exciting in terms of future demand.”
Generation X (born between 1965 and 1979) is a slightly smaller bunch, at 59.3 million. But with its oldest members turning 38 this year, this cohort has hit its peak home-buying years. In fact, a 2000 survey by BUILDER, CUSTOM HOME's sister magazine, shows that half of Gen-Xers have already bought their first homes. Like their younger Gen-Y siblings, they've led privileged lives and are likely to want to move up in home quality and price point as quickly as they can. Since both partners of most Gen-X couples work, and since they're not having children as early or as often as their parents did, they're able to save for down payments while they're still in their 20s. And it's becoming more and more common for well-off parents to supply their children with a down payment, a trend that will only intensify as the echo boomers come of age.
The economy over the past two years hasn't been kind to either generation, but experts believe the technology sector, a major source of Gen-X and -Y jobs, will bounce back. “Our view is that tech will eventually recover,” says Scott Hoyt, an economist with the respected Westchester, Pa.–based research firm Economy.com. While the prognosis is that the tech recovery won't happen until late this year at the earliest, that's still in plenty of time for younger home buyers to resume building their assets. “Gen-X will definitely be buying custom homes,” says Sandra Kulli, a home-building marketing consultant in Malibu, Calif. Lachman thinks the same of Gen-Y. “They've been pretty pampered,” she says. “They're going to want nicer homes.” Michael Wood, vice president of research at Teenage Research Unlimited, a Northbrook, Ill.–based firm that tracks adolescent consumer preferences, points out another promising Gen-Y factor. “They're just so into customization, everything from jeans to backpacks to cars,” he says. “I would think that that would carry over as they get older and buy homes.”
Naturally, Generations X and Y prioritize home features differently than the baby boomers do. Any builder who plans to land even one younger-than-the-boomers client should know the basics about home technology options, or have a subcontractor who does. Both BUILDER's Gen-X survey and Owens Corning's 2000 survey on Gen-Xers and -Yers, “House/Works: The Next Generation of American Homeowners,” turned up overwhelming evidence that younger buyers crave high-speed home Internet access. A 2002 report by the Pew Internet and American Life Project, “The Internet Goes to College: How Students Are Living in the Future with Today's Technology,” also indicates the extent to which future home buyers will take high-speed connections for granted. “Many college students have learned to live in an environment where they expect to be in touch with others throughout the day, to never be far from Internet access. ... They carry those expectations with them after graduation,” says the study's summary. High-speed Internet access already serves as a primary conduit for downloading music among the under-30 crowd, and downloadable movies are gaining in popularity as well. “Technology and entertainment are elements of great importance to today's teenagers,” Wood says.
Younger buyers don't just want high-tech houses for entertainment purposes—they want them for professional reasons, too. Generations X and Y have a tendency to blur the line between business and leisure time; they're more comfortable working at home than their parents are, and they don't always work from nine to five. They're going to want houses with the high-speed connections and equipment that permit them to work whenever they want to. They're more transient than their parents; they might choose to live in a resort area and work from home rather than live in the suburb where they grew up and commute to the city. And they place a high value on convenience, which bodes well for houses in mixed-use communities that provide access to retail and public transit. Their love of close-by amenities also indicates that the already-hot market for remodels in first-ring suburbs might gain strength in the years ahead.
While the echo boomers and Generation X represent a well of mostly future custom clients, upscale immigrants are looking for luxury homes right now. It's true that the majority of immigrants have traditionally come into the housing market as renters or entry-level buyers, but this rule has some significant exceptions. “The immigration we're seeing is not necessarily low-end,” says John Harding, Ph.D., associate professor of finance and real estate at the University of Connecticut. Demographer Pitkin agrees. “Studies of income and wealth show that the pattern of immigration seems to be very top- and bottom-concentrated,” he says. “There is a considerable number of immigrants who are well-educated, well-employed, and have very high incomes.”
Many of these affluent immigrants are here under the Immigration and Naturalization Service's (INS's) H1-B visa program, which allots a certain number of visas to overseas workers needed by U.S. companies to fill specialized technology jobs. By far, the highest number of H1-B recipients comes from India—124,697 of these visas were issued to Indians in 2000. Other nations with good schools and digitally driven economies, like China, Canada, the United Kingdom, and the Philippines, also send substantial numbers of upper-level high-tech employees here.
Like Generations X and Y, these immigrants will benefit from future growth in the technology sector. Notwithstanding the market's recent downturn, the U.S. Bureau of Labor Statistics predicts that the number of high-ranking computer jobs will increase greatly by 2010. Jobs for computer software engineers specializing in applications are expected to jump by 100 percent over 2000 levels, and positions for engineers who focus on systems software will likely grow by 90 percent. Immigrants working in high-tech jobs are most likely to settle in areas with lots of computer software or hardware companies, places like the Silicon Valley, North Carolina's Research Triangle, and Austin, Texas. But any business that needs highly qualified tech specialists, from an airline to an appliance manufacturer, may request H1-B visas for its employees. “There are heavy concentrations of people with H1-B visas in areas with a lot of high-tech companies, and then the rest of them are spread sporadically throughout the country,” says Jorge Martinez, spokesperson for the INS.
Latinos, too, are snapping up custom homes in some parts of the country. “When the Argentine economy collapsed, there was a huge influx of well-heeled Latin Americans into Florida,” says Pitkin. “People were buying homes as safe havens for themselves, protecting their assets, and not just in Miami—this was all over Florida. Now, the same thing might happen with the Brazilian economy.” According to John McIlvaine, senior resident fellow at the Urban Land Institute, the buying power of Latino immigrants and their children is rapidly escalating. “In Southern California, some pretty wealthy Hispanic families are already impacting the custom home market,” he says.
Regardless of their national origin, immigrants who can afford to are putting their money into their houses. “The tendency is to buy a big house before buying a Mercedes,” says NAHB director of research Gopal Ahluwalia of foreign-born U.S. residents. “The house is the first priority.”
In terms of home design and construction, whether the needs and desires of immigrants differ from those of native-born buyers depends on the individual client. An immigrant's household structure, his ties with his native country, and the amount of time he's lived in the United States all play into the existence or absence of any culturally influenced preferences.
Teri Froetschel, design director at Willis Homes, a custom builder in El Paso, Texas, has noticed that her many Mexican-American buyers often cite their dislike of the regionally popular Southwestern Pueblo-style architecture. “In Mexico, that style connotes low-cost housing,” she says. Stuart Narofsky, an architect on Long Island, outside New York City, has designed houses for several Indian clients, and the more traditional among them sometimes establish multiple-generation households. “I've designed a few houses with two master suites, one for the parents and one for the grandparents,” he says. “My Indian clients have also tended to want masonry construction rather than wood—in the part of India they're from, wood is used only as a decorative surface.”
But architects Lane Williams of Seattle and Mark Macy of San Francisco, both cities with a high percentage of Pacific Rim immigrants, say they've observed no difference between preferences of native-born and foreign-born clients. “In San Francisco, everyone is interested in feng shui—it doesn't matter where you're from,” Macy says.
The bottom line regarding high-end housing demographics? Each geographic market holds its own specialized niches. Every area is changing, but no two are changing in the same way. To capitalize on new markets now (and five, 10, or 15 years down the line), builders must do their homework. Rudimentary market research isn't as complicated as one might think—it may be as simple as going online. The U.S. Census Bureau (www.census.gov) recently released its small-area information, which contains demographic, social, economic, and housing characteristics of counties, municipalities, and metropolitan areas all over the country. A San Diego market research company called Claritas (www.claritas.com) has developed an easy-to-use online system for presenting general consumer profiles based on ZIP codes.
Builders who want to go further in their efforts to uncover new client bases could hire a market research firm to document current and future consumer behavior in their area. Armed with those results, they could then expand their marketing scope to include all demographic niches with the means and desire to buy a custom home—not just the baby boomers. Lachman, for one, thinks this is the way custom builders need to go if they're going to capture the markets of the future.
“Of all the people who need market research, custom builders really do,” she says. “Their product is so expensive, and their market is so small. If they goof, they goof big.”
