The real estate world is abuzz with chatter about alternative development strategies. Current challenges in affordability, sustainability, and community well-being require innovative solutions. Developers can redefine and reinvigorate communities by embracing fresh attitudes and techniques.
Socially sustainable development
As millennials enter the housing market for the first time, they are increasingly looking for alternate methods of buying and financing homes. They also place a premium on neighborhoods that are ecologically and socially sustainable. These desires present a growing opportunity for developers, lenders, and other real estate professionals to fill a niche in a somewhat underserved market.
Home size and environmental strategy
Over the past 80 years the average size of an American home has fluctuated wildly. In the 1950s, the average home was two beds one bath and under 1,000 square feet. That increased by 50% to 1,500 square feet in the 70s, and by 2019 that number reached a staggering 2,500 square feet- all while average family size has declined.
Larger homes have several negative impacts on the environment, and many eco-conscious younger buyers are well aware of this fact. The more space in a home, the more energy it takes to cool and heat. Land use has also become a hot topic in cities- sizable single-family developments require more city resources for fewer people. At the municipal level, cities across the country are moving away from detached single family homes and toward higher-density housing solutions. It is easier to provide city services like water, power, and public transportation in denser environments.
These problems often feed on each other- when schools are bad, employers can’t find skilled employees and move elsewhere. The tax base dries up, schools get worse, and the cycle continues. It is easy to lay blame at the feet of elected officials, but in reality, it is a combined failure of government officials, the local business community, and yes, fly-by-night developers.
Is government solving the problem?
On the federal level, the government is reasonably proactive about solving housing challenges. First time and low-income homebuyer programs have existed for decades, alongside tax breaks and other benefits the government dangles like a carrot to encourage home ownership. New legislation enacted with Congress’s 2017 Tax Cuts and Jobs Act created “Opportunity Zones,” which reward investors with tax incentives for real estate investments in historically underserved areas. There is hope that this will translate into more affordable housing solutions.
Locally, however, there are still many challenges that government has been unable to meet. Local density considerations, zoning laws, and worries about property values are all an impediment to the creation of housing that many in the market are clamoring for. Aside from a few pro-development locales, many local governments are hurting as much as they are helping.
A changing market requires new housing solutions
Upward pressures on home prices have led to a growing market niche for micro homes, those that are typically 500 square feet or less. These homes take up less space on a lot, usually do not have a great deal of personal outdoor space like a backyard and have a significantly lower carbon and environmental footprint compared to a larger home.
Just as crucial for cash-starved millennials are the economies of micro-home construction. A smaller average lot, low land-use, and density-focused developments allow developers and builders to sell homes at significantly lower prices. With the right size choices, developers can turn a previously unprofitable project into a home run. One of the best ways to ensure long-term growth and profitability in community development is to encourage growth in the number of new homeowners. Low-cost micro homes are a fantastic way to get them into the home buying ecosystem.
Micro-homes offer investors a way to reach an underserved niche that has yet to be fully tapped for value. Instead of fighting over the same lots, land, and rehab projects – not to mention end-users – consider the value you may find by taking advantage of an entirely new type of buyer, in a brand-new market.
Tiny Garfield House, image courtesy of Eric Davis