Bloomberg News

Homebuilders Target In-Laws, Dogs as Extended Families Grow

November 25, 2011

(Updates with builder confidence index in 14th paragraph.)

Nov. 16 (Bloomberg) -- Kevin Barnes figures buying a newly built home saved him money. That’s because he chose a model with a second master bedroom for his mother-in-law.

“She’s a free babysitter,” said the 42-year-old chemical salesman, who in June purchased a four-bedroom house in Orlando, Florida, built by KB Home. “Day care costs about $200 a week.”

The Barnes residence is part of a growing line of new homes marketed to multigenerational families, a category that increased by 30 percent from 2000 to 2010, according to the U.S. Census Bureau. KB Home, Lennar Corp. and PulteGroup Inc. are among the builders that offer models with second master bedrooms, kitchenettes and separate entrances.

Those features may help lure buyers at a time when new homes are selling at a record slow pace and more Americans are living with extended families, said Megan McGrath, a homebuilding-industry analyst with MKM Partners LP.

“When builders are still fighting for every sale, hitting on something that resonates with your local demographic can make a difference,” McGrath, based in Stamford, Connecticut, said in an e-mail.

The number of households comprising three generations rose to almost 5.1 million in 2010 from 3.9 million a decade earlier, according to the Census Bureau. An estimated 51 million Americans, or 16.7 percent of the population, lived in homes with at least two generations of adults in 2009, up from 42 million in 2000, the Pew Research Center said in an October report.

Niche Area

“This is a niche area that appears to be solid and growing,” Stephen Melman, director of economic services at the Washington-based National Association of Home Builders, said in a telephone interview. “It’s a demographic thing.”

The increase in multigenerational families won’t stimulate demand for new houses because it represents a slowing of household formation, Lawrence Yun, chief economist for the National Association of Realtors, said at a Nov. 11 conference in Anaheim, California. It’s also not clear the trend will continue once the economy recovers, he said.

“The past few years is really about economic hardship,” Yun said. “More people in multigenerational households just means there are more people under one roof.”

Falling Household Formations

Household formations fell to about 515,000 in 2009 from as high as 1.48 million in 2004, according to the Census Bureau’s American Community Survey. The number of formations in 2010 was about 981,000. The percentage of men aged 25 to 34 who live with their parents grew by almost a third during the past five years, as so-called boomerang children returned home from college or the military or lost their jobs, census figures show.

At the same time, aging baby boomers are moving in with their children to save money and share the task of child care.

“Clearly it’s not all because of the bad economy,” D’Vera Cohn, a senior writer with Pew, said in a telephone interview from Washington. “But it accelerated during the bad years.”

Those “bad years” hammered new home sales, which are expected to fall to 305,000 this year, according to the National Association of Home Builders. Last year, 323,000 new single- family homes sold, down from a peak of 1.28 million in 2005 and the fewest since the Commerce Department began tracking data in 1963, as unemployment lingered around 9 percent and discounted prices for foreclosed homes made it tough for builders to compete.

Homebuilder Confidence

A gauge of confidence among U.S. homebuilders climbed this month to the highest level since May 2010, a sign the outlook for construction may be stabilizing. The National Association of Home Builders/Wells Fargo index rose to 20 from 17 in October, the Washington-based group said today. Readings below 50 mean more respondents said conditions were poor.

While building homes for extended families won’t increase aggregate demand, it may spur interest in new designs that appeal to buyers in an era of economic stress, said Robert Shiller, a Yale University professor of economics and the co- creator of the S&P/Case-Shiller home price indexes.

“The bubble years before 2006 seemed to be a time when people were indulging in conspicuous consumption,” Shiller said in a telephone interview from his New Haven, Connecticut, home, which he has opened to student boarders for the past two decades. “These days, we don’t feel so good about showing off like that. If you have a relative who’s been unemployed for a year, it doesn’t feel the same. So you buy a house that has quarters for your mother and that feels better.”

Home Within Home

A steady stream of shoppers visited Lennar’s Next Gen models, dubbed “the home within a home,” at a grand opening in the Rosena Ranch community in San Bernardino, California, on Nov. 5. The houses have two front doors, two kitchens, two washer-dryer sets and two living rooms.

Prices start at $318,890 for the three-bedroom main house and built-in suite with an option of one or two bedrooms. The smallest home in the development -- a 1,404-square-foot (130- square-meter), one-story house -- starts at $241,070.

Dan Alvarez, owner of a risk-management company in Rancho Cucamonga, California, said he was attracted to the option of buying the house with a separate unit for his three college-aged children.

No Dorms

“If I were to move into a place like this, it eliminates having to rent another place if you’re funding college,” he said during a tour of the model home. “You wouldn’t have to pay for their college dorms.”

For Alvarez, 60, the drawbacks are the location -- more than an hour’s drive from his daughter’s college in Orange County -- and the weak local real estate market.

The San Bernardino-Riverside County region had the fifth- highest foreclosure rate among metropolitan areas with a population over 200,000 in the quarter ended Sept. 30, according to RealtyTrac Inc., a real estate information service in Irvine, California. Home starts are likely to fall to less than 1,000 in San Bernardino County this year, compared with 10,416 in 2005, according to Houston-based MetroStudy, which tracks housing construction.

Mary and Marty Nachman, retirees from Apple Valley, California, said the two-unit Lennar home may be preferable to the house they bought in 2007 in one of Pulte’s Del Webb senior communities, where their children can stay for only two months a year because they’re under age 55.

Moving Back Home

“With this economy, the way things are right now, there are a lot of young adult children who need to move back home for a while,” said Mary Nachman, 68, a retired juvenile court officer and mother of five. “We already know people in our community who’ve had kids move back in, but they’re doing it against the rules and doing it covertly. If they get turned in, their kids will have to leave.”

While duplexes, granny flats and guest houses have a long history, the two-homes-in-one models are new for mass-market builders, said Jeff Roos, president of Lennar’s Western region. Lennar, the third-largest U.S. builder by revenue, unveiled its first Next Gen homes in September in the Phoenix area and expects to offer them in as many as 40 communities by the end of this year, Roos said.

Next Gen homes are being built in Phoenix and California’s Inland Empire and Central Valley, and soon will be constructed in Las Vegas as well. Those regions have among the highest foreclosure rates and biggest price declines since the U.S. housing bubble burst, increasing the need for new designs to boost sales, Roos said.

Competing Well

“We think it will compete very well versus a foreclosure or distressed sale,” he said in a telephone interview from his office in Aliso Viejo, California. “It allows proximity and independence.”

Ronald Cosey, a San Bernardino County government auditor, said he wished the Next Gen model was available when he bought a house last year in Rosena Ranch, so he could either accommodate his mother or take in a renter for extra income.

“In this economy, everyone is struggling,” Cosey, who lives alone, said during a visit to compare the model home with his own. “Maybe you can find a foreclosure cheaper, but with this new home, with the extra income, it’s definitely a benefit.”

Pooling Resources

Zoning rules and building codes prohibit the Next Gen homes from having a full stove in the smaller unit’s kitchen, a restriction to discourage rentals, Roos said. The personal finance benefits may occur as extended families pool resources for down payments and mortgage bills, said John Burns, chairman of John Burns Real Estate Consulting in Irvine, California.

“It’s a real opportunity for homeownership for people that couldn’t get it otherwise,” he said in a telephone interview. “Imagine a young couple that can’t afford a home by themselves but mom can help them. That works out really well.”

The U.S. homeownership rate was 66.3 percent as of Sept. 30, down from a high of 69.2 percent in June 2004, the Census Bureau reported Nov. 2.

Pulte, the nation’s largest builder by revenue, offers new homes with stand-alone smaller units or the option of converting garages to “casitas,” the Spanish word for small houses. Other Pulte features to accommodate extended families include ground- floor master bedrooms for elderly family members who can’t climb stairs.

Doggie Couches

Some Pulte model homes include a room decorated with a doggie couch, chew toys and “dog eye chart” with pictures of a bone, a cat and paw prints -- stretching the extended family concept beyond the human species.

“We heard from our buyers: We have pets and we consider them a part of the family, and we’d rather have space that’s allocated to the pet, just like we would a bedroom for a child,” Scott Thomas, Pulte’s director of architecture, said in a telephone interview from Bloomfield Hills, Michigan.

“Gateway cities” on the coasts and along the Mexican border are prime markets for multigenerational housing because first- and second-generation immigrants are the most likely to live with extended families, said Richard Gollis, a principal at the Concord Group LLC, a real estate consulting firm in Newport Beach, California.

According to Pew, 25.8 percent of Asians, 23.7 percent of blacks and 23.4 percent of Hispanics live in multigenerational households, compared with 13.1 percent of whites.

Luxury-home builders are among developers tapping into the multigenerational trend, Gollis said.

Toll Brothers

Toll Brothers Inc., the largest U.S. builder of luxury homes, is now offering kitchenettes and second master bedrooms as an option in its “midsized” houses, which are as small as 3,200 square feet, said Tim Gehman, director of design for the Horsham, Pennsylvania-based builder.

At Lambert Ranch in Irvine, California, a 169-lot subdivision where sales are scheduled to begin in April, the New Home Co. plans to offer houses starting at about $900,000 that can be connected to form a two-unit compound, said Joan Marcus- Colvin, vice president for marketing and design at the Aliso Viejo, California-based company.

“It’s not a new concept,” she said in a telephone interview. “But for today’s market it hasn’t been introduced.”

The median price of an existing single-family house in the Orlando area was $128,200 in June, according to the Florida Association of Realtors. That’s when Barnes paid about $280,000 for his 2,565-square-foot house with the additional master bedroom, in KB Home’s Mabel Bridge community, to accommodate his 71-year-old mother-in-law, Linda Roulley.

Her quarters provide space to relax and watch television, and she has privacy from Barnes, his wife, their 3-year-old son, six cats and a Labrador retriever mix, Barnes said.

“We’re not putting her in a box,” he said. “She likes her independence.”

Roulley also enjoys spending time with her grandson, Ethan, and takes comfort knowing she can depend on her daughter Leanne to take her shopping or to the doctor, Barnes said.

There’s just one downside, Barnes joked: “I’ve got my mother-in-law living with me.”

--Editors: Daniel Taub, Christine Maurus

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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