By Adam Artunian, Senior Manager
High land prices in good locations generally force builders to build expensive homes. However, a number of builders have figured out how to build and sell entry-level homes to a growing demographic group. Builders are capitalizing on the rising number of affluent first-time buyers. These buyers tend to be dual-income, college-educated buyers with 10+ years of work experience who have delayed having children in comparison to their parents. For example, 23% of married couples had college degrees in 2014, compared to just 12% in 1990. We believe this affluent demographic will grow, too, as the surging number of people who turned 20 in the last decade may be ready to buy a home in the next decade. Below is our forecast by age group for 5.2 million more homeowners over the next decade.
Many of our clients have identified fantastic solutions to address the demand of this growing demographic. Knowing exactly what this buyer wants and building the right product in the right location is crucial for success. Here are a few solutions:
- High-density detached can work well. There are many detached products (with private outdoor spaces) achieving 16+ du/acre. Detached homes are generally more desirable for young families and allow for lower HOA dues.
- Smaller homes. With good design, homes do not need to be large. Entry buyers will trade off size (to some extent) for location and lifestyle.
- Three-story homes can live well for families—if done correctly. The layout must be open and allow for lots of light. Consider rooftop decks in lieu of private backyards.
- Energy efficiency can save buyers hundreds or thousands of dollars per year, helping them choose a new home over a resale. Being green can save the homeowner a lot of money. Be sure to include this as a standard feature and market it.
- More sales success has been achieved at prices below the FHA loan limit. FHA’s low-down-payment options appeal to many buyers.
- Private outdoor space is crucial. These spaces do not have to be large, just functional. Consider pocket yards, side yards, and rooftop decks.
- Minimize homeowners association dues and infrastructure bond payments. Entry buyers are payment sensitive and will usually trade a lower monthly payment for fewer community amenities, expecially if the community is walkable to shops, restaurants, and entertainment.
We have several tools to help our clients achieve entry-level home sales success:
- Our Consumer Insights Survey, with over 22,000 nationwide responses, provides unique insight into the price and feature trade-offs that entry-level buyers will make.
- Our DesignLens subscription features the latest high-density solutions our consultants and selected industry experts have identified across the country.
- Our soon-to-be published demographics book called Big Shifts Ahead: Demographic Clarity for Businesses highlights our household formation and homeownership forecasts by age group.
- Our consulting team has seen what works and does not work in every market.