The Relationship Between The Two

For more than 50 years, construction trends have closely followed job growth. Why? Money.

When a person enters the workforce, they’re effectively sending a statement, whether they want to or not, that they’re on their way to homeownership. Neal explains it as a matter of indication.

“When people get jobs, it gives them the confidence to enter into homeownership,” he says. “In the long run, job growth, and ultimately the ability to secure a job, is highly correlated with a person’s willingness to form a household. People who are interested in purchasing a new construction property need to have money. There can be pent-up demand for new construction, but until you can pay for it, it’s just not going to happen. It just doesn’t make sense.”

In addition, Beaver says that employment is a direct determinate of mortgage qualification, which means that when lenders see job growth, what that translates into is a larger pool of capable homebuyers – a development that builders should note.

However, Beaver notes that the arrival of Millennials, who have different tastes and work habits than their Baby Boomer parents, has introduced a new dynamic to homebuilding. 

“Already we’ve seen the tastes of Millennials starting to alter the direction of construction in Chicago,” she says. “People are portable with their lives, jobs and laptops, and with buyers being more wireless, the need for a den has been reduced.”

Beaver adds that an increase in dual earner households has also created a demand for more efficiently designed homes that require less maintenance. And Eisenberg suggests that, on the whole, Millennials simply aren’t demanding detached single-family homes like they used to. These days, he says, it’s all about the multifamily housing structure, which, as The Wall Street Journal reported, is in high demand.

In 2013, builders registered more than 293,000 multifamily homes, the highest since 2005. And this year, the pace has quickened even more. In July, the Census Bureau reported that multifamily construction starts had reached a seasonally adjusted annual pace of 423,000, their highest level since 2000. 

Another indicator of a possible increase in new construction is the variety of generations in the marketplace. While Baby Boomers are the second largest generation in human history, Eisenberg says they came out relatively unscathed from the economic downturn, and as such have not changed their habits dramatically. In contrast, the largest generation, the Millenials (or Generation Y), have been deeply impacted by the economy and are trickling into the housing market, causing builders to have to be a bit more patient to see what this generation’s preferences will be.

“The Millenials can’t quite get it together,” Eisenberg says. “They want to get out of their parents’ house as soon as possible, which is why the rental market is hot. Eventually, they’ll get on track; it is just going to take them longer. You see their desire for a car is less, they grew up with technology, they’re putting off marriage; add all of that together and they’re going to bring a tremendous amount of change.”

Eisenberg says that for now, builders are still focusing on catering to a variety of generational tastes, and soon, builders will have adjusted their designs to appease the next generations, causing no need for concern about a surplus of unwanted homes due to changing tastes. 

For example, Heather Gustafson, the vice president of business development at CMK Realty, represents multiple new construction projects where, when the downturn happened, the company needed to assess design and amenity aspects to “fill gaps in the marketplace at a fair market price,” she says.

Gustafson has found that the contemporary style of 1345 Wabash, CMK Realty’s condominium in the South Loop, has been welcomed by all generations. In addition, the company’s recently sold out projects, Basecamp in River North and Back Yard in Andersonville, had a precise target audience – the second-time buyer who is possibly raising a family and looking for a home in the $400,000 to $800,000 range. She says while inventory ebbs and flows, her clients are willing to wait for the right property to be completed.

“Lack of inventory or not, people want to pick their finishes and not just a rehab; they want new,” she explains. “We see a place for new [construction projects] in our city for the foreseeable future.”