Real Estate Outlook for 2018

With millennials and Gen Z numbering 150+ million, and the baby boomers remaining in their homes longer, the younger generations are meeting a housing shortage, an opportunity for homebuilders willing to scale product to their preferences—smaller and more energy-efficient homes, townhouses, condos, and “affordable” starter homes.  

With a need for more affordable rental units for the millennials and gen Z, multifamily housing prospects are strong.

“The elusive key is getting the price point right while maintaining attractive economics for the developer.”

Landaval can provide insights into this balance with its partner’s experience.

A tailwind of demand is expanding real estate utilization rates across a procession of generations extending from baby boomers, through the millennials, and now to generation Z. Each generation is large in numbers and complex in composition; and is contributing to real estate’s forward momentum.

The residual squeeze of the housing crisis has not gone away. The trouble is that residential development is overbuilding in the luxury sector in a handful of cities, while the sweet spot in demand is in mid-priced single-family houses that are affordable to a larger buyer pool. These homes are typically smaller than the McMansions that became popular during the last housing boom, especially in the Sun Belt and in select suburbs close to the gateway markets where lot costs were comparatively inexpensive. People are looking to middle-market development as an opportunity. The type of product can range from tract housing to urban row-houses, but the elusive key is getting the price point right while  maintaining attractive economics for the developer.

Affordable rental units for millennials are seeing solid demand. Similar to the owner-occupied housing market, the rental market has seen more focus on high-end luxury units. Affordability is not just an issue for 24-hour cities or 18-hour cities, but also for markets thought to be some of the most affordable in the United States. 

Opportunities exist across development segments: modular, single-family, garden apartments, mid-rise rentals in the core, etc. The upper-income market is well served at this point, so builders can profit by going where demand has not yet been adequately met.