Population Growth Promises Opportunities After Downturn

"The next wave of building will be different," Gardner observes, explaining that demographic shifts and other factors will create more demand for transportation-oriented developments, smaller housing units, more housing for seniors and generally higher-density development. The demand for transportation-oriented developments has already produced a number of transit-oriented mixed-use developments in Southern California, a trend that will continue when the recession ends and development accelerates again, Gardner says.

"Transportation costs and the time lost in commuting are becoming too great for some people. We're seeing more interest in being closer to jobs and spending less time commuting," Gardner says. In addition, he comments, "The next generation might not have as much money to spend on housing or rent, and that could translate into a new round of products." Combined with average household sizes decreasing both nationally and in Southern Calfornia, this suggests that the next wave of demand will be for smaller units in higher-density urban areas.

Not all of the future population growth will be in existing urban areas, so some of the future development will occur in outlying areas. But even the housing in those areas will likely be developed at higher densities and in smaller units, Gardner points out. One of the factors driving that change is that, following the recent era in which many homebuyers viewed housing as an investment vehicle, more buyers in the future will see housing as a place to live rather than an investment.

Gardner cites population studies showing that the portion of the population known as Generation Y, those born between 1981 and 1999, will have an even larger impact on housing than the Baby Boomers, who were born between 1946 and 1964. One reason for the greater impact will be that Gen Y will outnumber the Boomers—Gen Y numbers about 80 million, compared to 78 million for the Boomers. Another reason for Gen Y's greater impact on housing will be that younger people tend to move around more.

Growth in the younger portion of the population—ages 25 to 34—will create more demand for apartments and entry-level condos, according to the ULI projections, while the middle portion of the population—ages 55-69—will be looking for move-down units and age-restricted housing. The demand for seniors housing will continue to increase as well.

Gardner points out that, for investors and developers making decisions about Southern California, knowing that this region will continue to be a growth area is important. "If we were in a region without any projected growth, that would suggest that real estate would have no impetus for growth, no net influx of demand," he says. In Southern California, the projections are for significant growth and large increases in demand. Today's Southern California population of approximately 17.8 million is expected to grow to more than 21 million by the year 2020.

Gardner's firm, Rclco, is a 41-year-old real estate advisory and consulting firm that assists clients in all phases of development, from concept to completion. He notes that Rclco's clients are working now on projects planned for the years 2012 through 2014 and beyond, anticipating the growth in demand that will occur when the economy recovers.