During the recession of the 2000s and early 2010s, the number of home builders dropped by more than 50 percent. Falling from nearly 100,000 homebuilders to 48,261, the result was a housing shortage of 6.74 million single-family homes. In spite of this shortage, there’s a bright outlook for the 2020s.
Here’s the good news for home builders, integrators, manufacturers, and others in the home building industry: A recent report published by Builder Partnerships and written by Charles C. Shinn Jr., PhD, The Roaring 2020s: Housing’s Best Decade, suggests that baby boomers and millennials are expected to fuel high demand for housing throughout this decade. Beyond the 2020s, millennials are expected to lead all other demographic groups in demand for housing for the following 40 years.*
An unexpected rise in demand for housing in spite of the Coronavirus pandemic has caused both positive and negative business conditions for home builders. Drops in interest rates and increases in savings rates beginning last spring helped home buyers purchase homes, while intermittent shutdowns have caused drops in home sales.
During the 2020’s, millennials and baby boomers are both expected to modify their housing situations. Millennials are entering the home buying stage, while boomers are opting to downsize from their large homes to smaller homes, which require less maintenance.
And, with a large segment of workers working from home for the past many months, people living in urban areas are considering leaving cities and migrating to suburban areas. These buyers desire larger homes that can accommodate the added time spent at home with more space for work, and their lifestyle.
In August 2020, new home sales were the strongest since September 2006. Sales were 43 percent higher than the same period the previous year. Home inventory dropped 40 percent, to just over a 3 month supply of homes.
To keep up with the demand in home building during housing’s best decade and beyond, Shinn offers an approach that includes thinking outside the box and putting effort into simplifying and standardizing the production process to keep up with demand. Here are his suggestions for how that can be achieved:
- Home builders should consider their communities factories where they can simplify and standardize the production process. Rather than running one assembly line, run several that help “reduce construction time, increase quality, and reduce cost.”
- Since the hospitality industry is experiencing high unemployment, attracting young people into the trades should be prioritized.
- Re-establish vocational tech programs in high schools and junior colleges.
- Builders should “keep a pipeline of finished lots, approved land for development, and land going into zoning” to ensure a supply of land.
When baby boomers entered the housing market in the 1970’s, it was the top performing housing decade. Keeping up with demand for new housing will depend on millennials moving through different life stages. With similar trends expected, by the end of this decade, younger millennials (24-34) will be first time home buyers, and older millennials (35-39) will be selling their first homes and opting to buy larger homes for a more mature family.
Developing a clear plan on how to appeal to the millennial generation will increasingly become a critical focus for many builders.
*Read the full report for additional data and suggestions on the future of home building.