Demographic Changes Mean Dramatic Shifts in Demand for California Housing: ULI Report Finds Imbalance Between Consumer Preferences and Existing Stock

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Dec 12, 2011, 12:00 ET

WASHINGTON, Dec. 12, 2011 /PRNewswire-USNewswire/ -- Californians' housing preferences are changing rapidly—outpacing the rate at which the housing stock can be adapted. This will lead to a dramatic mismatch between housing supply and demand that could last through the next two decades, according to a new report released today by the Urban Land Institute (ULI).

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The New California Dream: How Demographic and Economic Changes May Shape the Housing Market, authored by ULI member and urban planner Arthur C. Nelson, director of the Metropolitan Research Center at the University of Utah, analyzes housing demand in the state through 2035. According to Nelson, the existing supply of conventional subdivision lots exceeds current demand, and will continue to do for at least the next 23 years, even if no new supply is created during that time.

Increased demand for multi-family housing, as well as townhomes, duplexes, three-plexes and four-plexes on small lots will dominate the housing markets of California's four largest Metropolitan Planning Organizations, the report says. This demand will be driven largely by the desires of Generation X, born between 1965 and 1978, and Generation Y, born between 1979 and 1996, both of whom are likely to be living in smaller housing than baby boomers. At least half of the demand will be for locations near transit.

ULI Chief Executive Officer Patrick Phillips said the research on California demand has implications nationwide. "Generation Y, in particular, will have an outsize influence on consumer demand," Phillips said. "It is the largest demographic group this country has ever seen, and their preferences will influence every aspect of American society. Quality of life is a paramount concern to much of this generation, and they will be drawn to places that offer the best work-life balance."

Nelson's research defines conventional subdivision lots as those built to a density of less than eight units per acre. However, small lots, built to a density of at least eight units per acre, do not necessarily dictate a small house, he notes. "A 3,000-square-foot lot could accommodate a 4,000-square-foot house with three floors at 1,000 square-feet each, plus a full basement," Nelson says. The most likely market for larger homes: multi-generational households.

The New California Dream, funded by The Rockefeller Foundation, analyzes demand and supply in areas served by the Association of Bay Area Governments; the Sacramento Area Council of Governments; San Diego Association of Governments; and the Southern California Association of Governments.

Nelson's assertions regarding the housing demand shift are based, in part, on the likelihood that California's homeownership rate of 57.9 percent (based on 2010 Census data) will decline due to continued instability in the housing market and tougher home mortgage underwriting requirements. Assuming the home ownership rate falls by 5 percent between 2010 and 2020, (the middle of three likely scenarios that Nelson outlines) rentals would account for about 75 percent of total new housing demand in California's four largest Metropolitan Planning Organizations between 2010 and 2035.

Demand is likely to be highest for rental units in Transit-Oriented Developments (TODs), the report notes. However, existing and potential TODs located within one-half mile of transit may accommodate only about two-thirds of the expected demand for such homes between 2010 and 2035. "For the most part, Californians' preferences mimic those of the nation as a whole, with one glaring exception," Nelson said. "Californians consider transit options to be far more important in choosing a place to live than do people in the rest of the nation."

A recent poll of Southern California voters conducted by FM3, a public opinion research firm, confirmed the trend: nearly two-thirds of respondents (64 percent) would prefer to live in communities that are pedestrian friendly, rather than in conventional residential communities that require driving to stores and other businesses. Sixty-five percent indicated they would rather live in communities with smaller lots and shorter commute times than in communities with larger houses and longer commutes.

The more compact housing typically developed near or as part of TODs could make those developments well positioned to be employment hubs, the ULI report adds. About 4.5 million jobs (one-quarter of all jobs in the four largest Metropolitan Planning Organizations) could be attracted to TODs as a result of a greater number of residents in those areas. Existing and expected TODs would be more than able to handle that demand, potentially offering work places for about 7 million jobs.

To download a copy of The New California Dream report, click here.

About the Urban Land Institute

The Urban Land Institute (www.uli.org) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.

SOURCE Urban Land Institute