This article discusses the short-term trend of multi-generational housing development and the long-term implications of such development within the real estate market.

Family-style living

As the economy continues to slowly rebound, more families are choosing to consolidate multiple generations under one roof. Now, approximately 20% of Americans live in multi-generational homes, per Lennar Homes architects. Lennar Homes reports they are responding to this trend by pursuing multi-generational housing development.

The company recently launched a Next Gen model created for families larger than the standard nuclear arrangement. These multi-generational homes are complete with separate entries, independent lock-offs, an additional kitchen and extra living space to accommodate as many different residents living in one home as possible.

With entry to the various sections of the homes accessible both inside and out, these houses are not considered multi-family units, and thus are not subject to multi-family zoning.  This is a variation on the grannie flats and casitas common to much of California’s more upscale regions.

A solution for now

Not only do multi-generational homes offer large families more flexibility in their lifestyles, but they are also more affordable for families who pool together their financial resources. This is especially significant now, as 49 million Americans are living in a household with at least two adult generations, up from 28 million in 1980, according to the Pew Research Center.

Multi-generational homes offer large families more flexibility in their lifestyles.

Multi-generational housing is a short-term remedy for families still struggling with the effects of the Lesser Depression – no jobs readily available. Although short-lived (say another five or six years before a full jobs recovery), the trend of families squeezing as many relatives as possible under one roof will be substantial, and has already reached an all-time high. For the next several years, multi-generational homes will continue to be a necessity driven by the economy.

Suburban homes

The suburbs are most likely to be sites of multi-generational living. South of Los Angeles, the city of Norwalk has the highest percentage of multi-generational households in the U.S. Norwalk’s mostly working-class Hispanic community was hit disproportionately hard with the joblessness of the Lesser Depression, with more families living together under one roof as a result. [For more information on suburban poverty rates, see the October 2012 first tuesday article, Poverty hits home with suburban poor.]

Although developers recognize value in responding to living patterns, extensive antiquated zoning policies prevent multi-generational homes from being constructed within urban development. Due to outdated and unrealistic urban density restrictions, rezoning for residential development within urban living areas is difficult at best. Of course, this simply forces the builder and the market into urban sprawl, and propagates the energy inefficiencies that come with distance from urban centers.

In a recent example of restrictive urban zoning requirements, Arcadia Development Co. was prevented from rezoning a parcel for residential development in an urban setting within the city of Morgan Hill. With limitations established in the interest of public welfare, a density restriction was applied solely to Arcadia Development Co.’s parcel of development, excluding any planned residential expansion.

Thus, developers wanting to pursue the construction of multi-generational homes are pushed out of urban areas and into suburban neighborhoods, precluding any newly developed land from combating urban sprawl. [For more information regarding urban zoning restrictions, see the first tuesday December 2011 RCD Density restriction on developer’s parcel not an abuse of local agency’s police power.]

Demand demographics

Overall, immigrant families in particular are driving the demand for multi-generational home building. According to Pew Research Center, Hispanic and Asian families are 50% more likely than white families to have multiple generations in the same home. Cultural preference and economic motives are the main reasons immigrant families prefer gathering under one roof. [For more information on immigration and its impact on real estate, see the January 2011 first tuesday article Lower price appreciation in socioeconomic enclaves.]

Aside from cultural leanings, doubling up and living with family members is mutually beneficial for all individuals who need to save. Due to the Great Recession, many Boomers on the brink of retirement have experienced a reduction in savings and subsequently postponed retirement plans. At the same time, a great many have lost their homes to foreclosure in the negative equity roll out. Temporarily combining households with adult children makes sense to help absorb the effects of the financial crisis before taking the leap into retirement. Then, upon retirement, the majority of Boomers will decide to relocate to condos, retirement complexes or other high-density residences. [For information on the effects of Baby Boomers’ retirement on housing, see July 2011 first tuesday article, Boomers retire and California trembles.]

Due to the Great Recession, many Boomers on the brink of retirement have experienced a reduction in savings and subsequently postponed retirement plans.

Gen Y, children of the Baby Boomers (Boomers), also temporarily benefit from living with their relatives while they search for employment befitting their educations. Once this goal has been achieved, Gen Y will fly the nest and relocate away from the suburbs where this co-habitation takes place, and move to the urban centers. [For more information on Gen Y’s eventual return to urban cores, see the July 2011 first tuesday article, From city to suburbia then back.]

No more than a temporary fix

Builders responding to multi-generational development trends may be making short-sighted efforts, as the demand for these homes is simply a temporary market fix. With a long-term rebound of the housing market imminent, shifts in trends and market conditions will render multi-generational living a wave of the past before the end of the decade. Ultimately, these homes will be left sitting vacant and unsold, or more likely, converted to multiple family residences – duplexes. [For more information regarding the anticipated decline in demand for large single family residences (SFRs), see the January 2012 first tuesday article, For Gen Y, bigger is not better.]

As residential preference continues its shift away from the suburbs to ever higher urban density, construction in suburban neighborhoods does not make long-term sense for builders. Rather, an insistence on understanding demand market fundamentals is key going forward, with builders being the first in line to respond to long-term market patterns. No longer will simply supplying housing bring in the public to buy with the government holding their hand.