The New Normal, part 2

This is the second in a three-part series on residential architecture in today’s economic climate. To read part one, click here.

Across post-recession America, still reeling from the housing tsunami of easy credit, subprime mortgages, and packaged collateralized debt obligations, the homeownership landscape is littered with foreclosed condominiums, empty and molding single-family homes, and underwater mortgages. Still, a building boom is on the horizon. It’s multifamily housing.

Demographics and demand are propelling the design and construction of new rental housing. The U.S. Census Bureau projects that from 2010 to 2015, homeownership rates will decline and 4 million renters will enter the housing market. Some are baby boomers downsizing their lifestyles. Others can’t qualify for mortgages that now require 20 percent down. About 3 million, according to Marcus & Millichap Real Estate Investment Services, are “echo boomers” (otherwise known as Generation Y or Millennials) who lived with their parents between 2005 and 2010, and are now entering the job market and leaving home. Traumatized by the housing crash they experienced with their parents, they’re renting, not buying.

“Homeownership is no longer the investment people thought it would be, and it almost takes your firstborn to qualify for a home right now, so more people are choosing to rent,” says Don Meeks, AIA, founder and principal of Meeks + Partners in Houston. “But there’s a huge demand for new product that hasn’t been built yet.” According to the real estate intelligence provider CoStar Group, 94,000 new units will be built in 2012, up from the 22,000 it forecasts for this year. In 2013, CoStar is forecasting just over 109,000 new units.

According to Meeks, “There’s a lot of ‘A’ product that’s turned ‘B,’ ‘B’ product that’s turned ‘C,’ and so on. So there is existing product that hasn’t been updated, which is filling the need for affordable rental.”

The new renters, however, want apartments designed to cater to their 21st-century lifestyle, needs, and values: sustainably designed buildings with gyms and coffee shops, public open space, and landscaping located in urban hubs near public transit, their workplaces, restaurants, and retail. It doesn’t seem to matter that these new rental units are smaller than those designed a decade ago. Open plans, light-filled spaces with floor-to-ceiling windows, and slimmer, lightweight technology allow renters to live smaller without feeling the pinch.

“It’s all about lifestyle,” Meeks says. “Since the first of this year, we’ve booked 8,000 units of multifamily luxury rental. That’s the big demand right now.”

Job growth is fueling the market for apartments. Washington D.C., and the mid-Atlantic states (government), as well as the Texas cities of Dallas, Houston, and Austin (energy and technology), have been the first markets to rebound, Meeks says. Secondary markets include Raleigh and Charlotte, N.C., and Charleston, S.C., then San Antonio, Denver, and parts of Florida.

Along with changing demographics, capital markets are driving the apartment market, says David Graham, FAIA, principal of Elness Swenson Graham Architects in Minneapolis. “They’re saying that urban high-density, mixed-use multifamily housing that’s sustainable in cool neighborhoods and next to transit is the new hot investment commodity. In the Midwest, the slice of the pie that’s been getting the most attention is luxury rental communities.”

Mid-rise structures are still the norm, despite the call for the greater density that high-rise buildings provide. “Before the economic crunch, we had several high-rises on the boards, but they have since all disappeared,” says Douglas Root, AIA, founder of Douglas Root Architects in Boca Raton, Fla. “In the last two years, we haven’t received one request for a high-rise.” While projects in other parts of Florida are starting back up, Root argues that most banks appear to be still refusing to lend money for high-rises until the current glut of foreclosed properties gets eaten up.

High-rise density also remains a challenge in many urban neighborhoods. “Architects would like to do tall buildings, but we still experience significant resistance from neighborhood groups on structures of more than four or five stories,” Graham says. “Our role and value as architects is to mediate between the developer, who is in fact an investment banker; the bureaucracies of the city, which are well intended; and the neighborhood groups, which only want what’s best. Our job is to bring those values together and design a higher-quality building that provides density, works with the city’s vision, benefits the public, builds the tax base, and creates vibrant cities.”

Or as Clark Manus, FAIA, principal of Heller Manus Architects in San Francisco and 2011 AIA president, recently wrote in Multi-Housing News Online, “Not only do architects have to find what projects might be funded; we have to be part of the effort that puts all the players together in public-private partnerships. We have to be among the rainmakers who make things happen.”

The current challenges are formidable, especially for architects who focus on affordable housing.“When the recession hit, and real estate dropped in price, some of the affordable-housing developers in the Los Angeles area started to be able to compete for the properties which were previously being snapped up by market-rate housing developers, which was a positive,” says Julie Eizenberg, AIA, founder and principal of Koning Eizenberg Architecture in Santa Monica, Calif. “But in California, the funding system has been volatile, so [the] ability to move projects forward has been less than predictable and consequently, projects are stalling.”

Also, Eizenberg’s firm is “having trouble competing for market-rate housing, because we can’t pay salaries at the rate of service,” she continues. She fears that to survive “architects will have to get clever at delivering quality inventive housing without spending the time.”

Still, Graham suggests, “Innovation in design is more important than ever. We’re constantly trying to come up with a new brand or identity through aesthetics. It’s as though we’re designing in the same realm of consumer goods as automobiles and technology.” Undoubtedly, such innovation will play a large role in moving the economy forward as new rental apartments enter the market as a consumer product rather than as an investment. Graham says, “In 2011 it would appear that urban multifamily rental is the new economic engine that will drive the economy forward.”