The home buying industry is a unique example of an industry that has largely remained undisrupted through the drastic changes in technology and lifestyle over the last few decades.
While transportation, hospitality, retail and virtually every other industry have been forced to make dramatic changes to their business models and consumer messaging to adjust to demographic shifts and customer preferences, mortgage and real estate have remained relatively stagnant in comparison.
The digital mortgage experience is improving rapidly and many companies are adopting new technology, but the messaging and approach to homeownership seems to be the same as it was in the 1960s. The American Dream still consists of a house in the suburbs with 2.5 children.
I recently came across this fascinating article by David Brooks, in which he describes what he calls “the collapse of the detached nuclear family.” Sounds really heartwarming, right? He explains that the evolution of family circumstances, lifestyles and composition of households over the last 70 years have changed significantly, yet the housing ecosystem hasn’t appropriately adapted yet.
The “American Dream” seems to have been crystalized in America’s brain during a time when over three-quarters of children lived in two-parent households and student loans were just entering the scene.
In a panel at the Lenders One conference this week, Jonathan Lawless, VP of Affordable Lending at Fannie Mae, shared a similar sentiment.
“The average home was built 35-40 years ago and many homes well before then, but all when the needs were very different,” he said. “Most of the homes were built in a timeframe when we had a totally different demographic living in them.”
While the industry screams inventory shortage, Lawless says we should reexamine the current housing stock.
The majority of next-generation consumers (and many Baby Boomers) no longer need a three-bedroom house. According to the Census Bureau, from 1970 to 2012, the number of people married with children was cut in half from 40% to 20%. In the same period, the number of single-person households grew by 10%, rising to nearly a third of the population.
Just in the last ten years, the way people live, work and communicate has completely transformed. When we consider how to advertise or build infrastructure for the next generation, we have to include these changes and projections for the future.
Reexamination is needed in all aspects of the industry from sales and customer experience to production and supply. Today’s consumers’ needs have shifted, and we’re trying to sell them homes built for another era with a message that doesn’t resonate.
What happens when an industry ignores the shift
Last month, Victoria’s Secret became a perfect example of what happens to a company when they ignore its changing customer base.
During my coming of age years in the 90s, Victoria’s Secret was in its prime. It was “the” place to shop for women’s underwear and when they launched their annual fashion show, it immediately became a household icon. While sales had begun to drop, in 2013 the brand held a 32% market share and was worth $28B. By 2019, they had shut down the fashion show due to low viewership and sales were plummeting. Last month, the company sold for only $1.1B.
What went wrong?
When I heard news of the sale, I was shocked, but I also realized I hadn’t shopped there in years. Ten years ago, I watched eagerly for their semi annual sales.
As I thought more about this, I realized the subconscious messages that influenced my purchasing behavior. I didn’t identify with the women I saw represented in the models all over the store, nor was I interested in the story they were telling about beauty.
In a few short years, our culture has shifted toward a more empowering and inclusive view of women and our bodies. One consumer said that she used to go to Victoria’s Secret to find something to wear to make her husband happy, but today she wants to buy something that makes her feel good.
In the last five years, lingerie brand competitors have taken significant market share from Victoria’s Secret with a very powerful and contrasting message. They feature women of color, a variety of body sizes, and promote a message of empowerment, that women should love their bodies as they are. For example, the fastest growing lingerie brand, Savage X Fenty, advertises diverse models and a tagline, “created for the female gaze, not the male gaze.” They are expected to hit $325B by 2025.
While women’s apparel has shifted from promoting outdated ideals of beauty, has housing appropriately adjusted to represent modern ideals about family, housing, and wealth-building? Or are we still stuck in the white-picket-fence era?
The Consumer Shift in Housing
While not comprehensive, I will outline some of the biggest trends in the way next-generation consumers are approaching housing starting with where we live and continuing with other trends in future articles.
Where we live: Welcome to Hipsturbia
Next-gen consumers will sacrifice their paychecks and oftentimes opportunities to own a home for the ability to live in a city center, while others will commute two hours in traffic each way to work.
That’s not because they’re irresponsible or love the podcast time. Lawless explains this phenomenon simply, “People will make significant trade-off in choosing where to live, sometimes for work but also to be a part of a community.”
Community is a critical and often unmet need in our society, and many choose to pay the price for that need in either a high-priced condo or time in the car.
In the aforementioned David Brooks article that I just can’t get enough of, he describes how our society may be attempting to rethink our concept of family, often by the places we choose to live.
“Today we are crawling out from the wreckage of that hyper-individualism — which left many families detached and unsupported — and people are experimenting with more connected ways of living, with new shapes and varieties of extended families,” he writes.
That’s why homebuyers who are fleeing expensive markets – like San Francisco and Los Angeles – are not all running to the suburbs where they may feel further isolated. Many are looking to “micro cities,” in which they have city amenities (community, proximity to experiences, transportation… etc.) in more affordable locations like Austin or Minneapolis. And the suburban areas they have moved into have the same “city within a city” vibe.
In the Urban Land Institute’s “2020 Emerging Trends in Real Estate“ report, they explain that while millennials are moving to some of the larger suburbs and smaller cities in search of more affordable housing, they are looking for walkable areas with their favorite aspects of cities (restaurants, shops, entertainment, transportation, etc.). The report coined my new favorite word of the year, “hipsturbia,” as millennials reimagine suburbs as a hipster’s paradise.
Developers have certainly taken note of this trend, helping to build out some of the hottest new hipsturbias in places like Dallas’s Oak Park or Atlanta’s Alpharetta. In the future, suburban areas will likely continue to morph into cities within cities to lower the cost of living, transportation times, and pollutants.
Today’s customer doesn’t fit into the traditional mold of a suburban family with 2.5 kids. Alternative lifestyles and values have become mainstream, and it’s critical that companies in the housing industry understand this shift.
For this industry to avoid a Victoria’s Secret moment, I think we need to address all areas in which our society is changing and reevaluate our approach and message about the American Dream.