Be it ever so humble, there’s no place like a rented apartment. This may just be the mantra of U.S. households for the next three years, according to a new study released Tuesday by the Demand Institute division of the U.S. Conference Board. Most Americans still hope to own a home, the study found — but that home will be smaller than the MacMansions of the housing boom.Housing and the related mortgage industry helped to tip the U.S. into the Great Recession. Data suggest the sector is bottoming out, but its recovery will be unlike that of past business cycles, according to the Demand Institute’s report, entitled “The Shifting Nature of U.S. Housing Demand.” (See the most recent data on home prices by city here.)
The first stage of this recovery will be led by rental properties. Past homeowners who lost their houses to foreclosure, young adults who are now living at home or who haven’t saved a down payment, and new immigrants will drive the demand to lease rather than to buy.
As a result, new construction will be concentrated in multi-unit projects, a shift already evident in 2012 data. At the same time, speculators hoping to cash in on increasing rents will buy up vacant properties with an eye to leasing them, helping to pare down the huge oversupply of existing homes on the market.
Renting households who tend to own fewer cars than home owners (in part because of the expense of parking) will prefer apartments within walking distance to retail, school and work, or towns with good mass-transit systems. That will make certain urban areas more attractive than the suburbs and rural areas, the study said.
Homeownership isn’t dead, however, argued Louise Keely, chief research officer at the Institute and one of the study’s authors. It will simply be delayed, because consumers are still repairing their finances, and reconfigured, because big is no longer better in housing.
“Many [buyers] will scale back their housing aspirations,” according to the report, which projected that the average size of a newly built home will shrink to 2,150 square feet by 2015 from a housing-boom high of 2,500 square feet. The downsizing will bring home sizes back to mid-1990s levels.
Less space will change spending patterns. “Almost every consumer-facing industry will feel this effect as consumers adapt” to new housing choices, the report said.
Activities once reserved for home will be outsourced–creating business opportunities, Keely said. These includes commercial storage spaces in place of big basements and attics, and gym membership instead of a personal work-out room at home. Food and nondurable retailers may find shoppers making more visits but buying less each time because of fewer cupboards in their homes.
Keely also said banks could develop financial products that help renters go from leasing to owning. This is because, after all the havoc wreaked by the housing sector on the economy and many consumers’ individual finances, homeownership remains a key goal for many Americans. The report cited a Pew Research survey that showed 80% of respondents still think buying a home is the best long-term investment they can make.
The Demand Institute is jointly operated by the Conference Board and Nielsen Holdings N.V.