X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

With all the doom and gloom in the residential real estate market, it is easy to overlook the good news. The fact is, however, that despite the down market, many new residential developments are still selling briskly. By examining these developments to see what distinguishes them from their counterparts that are languishing on the market, we can peer into the crystal ball to see what the future of residential construction in New Jersey will look like.

The most striking aspect is the absence of greenfields developments, or developments built on open space, usually in the form of former farmland. The suburban sprawl that has been gobbling up land at the rate of 50 acres a day is becoming a thing of the past for a number of reasons: 1) the state is rapidly approaching build-out, meaning that no land will be left to develop; 2) the fear that gas prices will return to the highs of last summer–along with increasing traffic congestion–means buyers are less tolerant of long commutes; 3) concerns about increased energy costs mean buyers no longer want to pay to heat and cool a large home; and 4) people are having fewer children, which means they no longer require large homes.

The plummeting demand for large-lot houses is already reflected in sales figures for resales. According to Jeffrey G. Otteau of the Otteau Valuation Group, a well-known New Jersey real estate analyst who recently spoke at an American Properties Realty buyers’ seminar, the unsold inventory for homes costing less than $400,000 as of late last year was 12.8 months, meaning it would take 12.8 months to sell all of the homes on the market, under current market conditions, even if no other houses went on the market.

By contrast, the unsold inventory for homes in the $1 million to $2.5 million price range was 37.7 months, or more than three years, and the supply for homes above the $2.5 million price point was 83.5 months–or almost seven years. The speed with which the decline in appeal of large-lot houses has occurred is mind-boggling. Less than four years ago, at the peak of the real estate market in the summer of 2005, “McMansions” in the $1 million to $2.5 million range were selling briskly, with prices at desirable new developments sometimes being raised on a weekly basis. And the downward spiral in the market for large-lot homes is only expected to accelerate as the number of households with children continues to decline.

According to Otteau, in the 1980s 50% of households had children; by 2000, that number had dropped to 33% of households; and by 2025 only 25% of households will have children, yielding a national surplus of 22 million large-lot homes. Over the next 15 years, a stunning 75% of home sales will be by childless households.

So if the nuclear family immortalized in post-war television sitcoms such as The Donna Reed Show and The Adventures of Ozzie and Harriet is going the way of the dodo bird, what is taking its place? According to Otteau, the buyers of the future fall into three groups: the largest, at 78 million, is the baby boomer generation (ages 44 to 62) who are looking to trade down to smaller homes now that their children have left the nest. They are retiring at the rate of 10,000 a day. The second largest group, at 75 million, is the Gen-Y group (ages 14 to 31), who are first-time buyers of smaller homes. The smallest group, at 50 million, is the Gen-X group (ages 32 to 43), which of the three groups is the only one that resembles the traditional family household, and the only group that is looking to trade up to a larger home.

The recent sales figures make it clear that the first two groups are no longer seeking the typical four-bedroom, 2.5 bath suburban colonial, but what do they want? As mentioned, the developments that are selling briskly, including those being built by American Properties Realty, such as The Preserve at Matawan, Mill Pond at Eatontown and The Jefferson in Ewing, offer a clue.

First, they want value. New Jersey has a glut of expensive homes, and not enough inventory in the affordable market-rate (as opposed to subsidized) ranges. Second, they want convenient locations close to jobs, highways and mass transportation, which translates to an increased demand for urban settings. New Jersey residents are fed up with their long commutes, which the US Census ranks as the third longest in the nation, with an average length of 30 minutes. And third, although they eschew fancy frills, they do want quality and comfort, including features such as fireplaces and master suites. In exchange they are willing to sacrifice the classic American dream of the large-lot colonial for multifamily living. Indeed, increasing time constraints (we are working longer hours than ever) and shrinking assets mean that many buyers–including both downsizing older buyers and first-time buyers–are happy to forgo the headache and expense of maintaining a suburban property.

In addition, the declining fortunes of the American population mean that the dream of home ownership will become out of reach for many more people, resulting in an increased demand for rental housing. This in turn means that multifamily housing is also becoming more attractive as an investment opportunity.

In addition to business opportunities, however, changing market conditions also offer the opportunity for a wider sense of optimism. In many ways the residential landscape of the future offers significant improvements over its land-gobbling predecessor: it will be greener and more affordable; it holds the prospect of revitalizing our deteriorating urban neighborhoods; and it affords homeowners a less maintenance-intensive lifestyle, freeing their time for other pursuits. But perhaps most of all in our increasingly alienated society, it offers greater opportunity for a sense of community.

There is a saying in the local development sector: “Wherever the nation is going, New Jersey gets there first.” New Jersey was the poster child for the suburban sprawl development. And although those who are resistant to change may bemoan its disappearance, those who are looking to the future should embrace the opportunity to replace an outdated, inefficient development model with one that is attractive, economically sound and spiritually nourishing.

Paul Csik is senior vice president of sales and marketing at American Properties Realty in Iselin. The views expressed here are the author’s own.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.