This marketability discussion is an excerpt from an
appraisal that I recently
completed of a proposed “active-adult” housing development.
Title VIII of the
Civil Rights Act of 1968 (Fair Housing Act) prohibits discrimination in the
sale, rental and financing of dwellings based on race, color, religion, sex or
national origin. Title VIII was amended in 1988 (effective March 12, 1989) by
the Fair Housing Amendments Act, which, among other provisions, expanded the
coverage of the Fair Housing Act to prohibit discrimination based on disability
or on familial status. The 1988 amendments to the Fair Housing Act also created
an exemption to the provisions baring discrimination on the basis of familial
status for those housing developments that qualified as housing for persons age
55 or older. This was further expanded with the creation of the Housing for
Older Persons Act of 1995.
As a result of
these acts, as now amended, housing that meets the definition of "housing
for older persons" is exempt from the law's familial status requirements,
provided that: 1) HUD has determined that the dwelling is specifically designed
for and occupied by elderly persons under a Federal, State or local government
program or; 2) It is occupied solely by persons who are 62 or older or; 3) It
houses at least one person who is 55 or older in at least 80 percent of the
occupied units, and adheres to a policy that demonstrates intent to house
persons who are 55 or older. Therefore, housing that satisfies the legal
definition of senior housing or housing for older persons described above, can
legally exclude families with children. A property does not have to provide
"significant facilities and services" designed for the elderly to
qualify.
Children born
after World War II (1946) up through 1964 were a part of what is referred to as
the “baby boom”. This segment of the population, who at the time of the 2000
decennial census ranged from 36 to 54 years old, accounted for nearly
80,000,000 Americans. Over the next twenty years these 80,000,000 Americans
will turn 55 years old. By contrast, at the time of the census, only 59,000,000
people were 55 or older. In 2001, the first “boomers” turned 55, and by 2010
over 37,000,000 will have turned 55. The Boomer generation will be the largest,
fastest growing and wealthiest segment of society. The Fair Housing Act makes
it possible to develop homes exclusively for Boomers; simple logic suggests
that it makes the most sense to produce a product that appeals to the greatest
number of people.
Like most of the
northeast, the local region is suffering from a housing shortage. In the
Seacoast, thousands of new jobs were added and most were at higher wage levels.
As a result, the total of all wages paid in Portsmouth rose 42% from 1997 to
2000. This meant that considerably more money was chasing after the existing housing
supply. Since more people are employed in Portsmouth than in any other
community in the region the impact of this wealth was widespread. Demand was
compounded by record low mortgage rates, which translated into even more buying
power.
As a result, in
Portsmouth for example, the average cost of a three bedroom ranch rose from
$113,000 in 1997 to $210,000 in 2002; an 85% increase in only five years. In
most communities, homes have appreciated at rates between 9% and 16% annually,
while the increase in the Consumer Price Index has only averaged about 2%.
In a free market
economy, soaring demand and soaring prices are supposed to be catalysts for
more supply. That is the way it is supposed to work. In reality, supply did not
keep pace; from 1990 to 2000, the State’s population increased 11.4% while the
housing supply increased by only 8.8%. That may sound like a small gap, but it
translates to 13,000 fewer housing units being added than were needed.
Likewise, vacancy is too low; a certain amount of vacancy is necessary to
maintain a healthy balance between supply and demand. According to the census,
5.9% of the nation’s housing stock was vacant[1].
Most of the northeast is at around 2%. In the Seacoast alone, where vacancy
averaged 2.4%, we would have to have over 3,000 more empty housing units just
to match the national average.
Albeit anecdotal,
the fact that new homes and condominiums are being sold as fast as they are
built clearly implies that demand exists. But the most important question to
answer relates to the likelihood of continued demand. According to the 2000
census, the cities and towns that comprise the Portsmouth – Rochester, NH-ME
PMSA had a total population of 240,698. The Maine and New Hampshire Offices of
State Planning have prepared population forecasts for each community in each
state. In the year 2010, a total population of 266,651 is forecast. Based upon
the average local household size of 2.34 the fact that the population is
forecast to increase by 25,953 suggests that 11,091 more housing units are
needed. An allowance must be made for routine vacancy; rather than forecast
using each town’s actual vacancy rate, which averages 2.4%, I have forecast a
50% increase in each, in the hope of reflecting a more healthy balance between
supply and demand.
Calculating each
town individually, a forecasted housing need of 11,673 units is indicated.
Checking records for building permits for housing units issued in each town
during 2001 and 2002 (per the Census Bureau) reveals that 2,924 building permits
have already been issued. Assuming that each permit translates to a net
increase of one housing unit, 8,749 more housing units are necessary. Based
upon the state’s population forecasts, there is demand for an average of 1,094
more housing units each year, up to and including 2010.
It is important
to note that between 1990 and 2000, an average of 811 units were added each
year. So, if this pace continues, there will continue to be a shortage, and
strong upward pressure on prices. Conversely, the past few years have had a
tremendous housing boom. Construction during 2001 and 2002 has averaged 1,462
units per year. If this pace
continues, we run the risk of overbuilding. Built-up demand due to population
growth, increases in payroll, the reduction in average household size and the
prevalence of moderate interest rates will likely sustain this pace for some
time. Also, the spread between the actual pace and the required pace is not so
great that an excess would occur anytime soon. But, a significant or even simply
a sudden reversal of a factor that influences demand could result in an
oversupply. Based solely on the local economy, I see the likelihood of this
happening to be relatively minor over the next three to five years. National
and global factors are more significant, as well as less predictable variables,
so there can be no guarantees.
This conclusion
does not provide insight specifically into the likely absorption of housing
marketed to individuals who are 55 years old or older. This is actually a two part
question: First, how many homes can this segment of the market be expected to
buy and, second, how many of them can be expected to purchase in an age
restricted development. The first part is easier to answer. According to the
Census Bureau’s 1999 American Housing Survey, 4.3% of the households headed by
an individual who was 65[2]
or older, moved in the preceding year. Of these movers, 22.9% bought a new home
(as opposed to renting or buying an existing home). The 2001 American Housing
Survey showed that 4.3% of elderly (65+) households moved in the prior year and
22.6% bought new. These figures are quite consistent, suggesting that roughly
1% of the population over 65 will buy a new home.
The last census
revealed that there were 21,046 elderly households in the region. The NH Office
of State Planning, in preparing their population projections, also prepared a
projection by age. The forecast indicates that the number of residents in
Rockingham and Strafford Counties 65 and older will increase by 42.7% from 2000
to 2010. Applying this same relationship to the number of households, we can
anticipate 30,033 elderly households by 2010, or an average of 25,540 for each
year during the decade. Recall though that the elderly population has just
begun rising dramatically.
Returning to the
American Housing Survey findings, if 1% of these households are likely to move
into a new home, then it can be said that pool of potential buyers will average
255 elderly households per year. This analysis omits households that are aged
55 to 64. It also omits the possibility of a renter becoming a buyer, or a
buyer of an existing home purchasing new. Even at its most conservative, an
estimated pace of 255 potential buyers each year suggests a good outlook for
demand.
Unfortunately,
there is little reliable data to indicate how many of these elderly buyers of
new homes will actually choose an age-restricted condominium project. This data
is not tracked by the census. Also, not only is the phenomena of age-restricted
housing quite new, but the largest pool of potential buyers are just now
becoming eligible to buy. Again, logic must prevail. If a project compares
favorably with regard to price, quality, features offered and location, then it
seems reasonable that these buyers will gravitate to housing that was built
with their specific preferences in mind.
Finally, demand
for the region in general must be addressed. The Seacoast region is considered
to be an extremely desirable place to live by all age groups. Specifically
though, the May/June issue of the American Association of Retired Persons
magazine, “AARP, The Magazine” rated Portsmouth as one of its top 15 “dream
towns”.[3]
The following is a side-bar that appeared in that article:
How We Picked the Cities
Our research team looked at 10
criteria reflecting the needs, interests, and tastes of Americans age 50 and
older. Not all of the towns excel in every category, but each ranked high in
several, and many scored high in most. You'll see some surprises here—we made a
genuine attempt to spotlight sleepers—vibrant towns and cities that may not
have occurred to you.
o
Availability of jobs,
since many in this group will work beyond age 65.
o
Affordable
housing—many cities have costs on par with or below the national median price
of $161,600.
o
Culture and
entertainment (from museums and opera to shopping and sports events).
o
Access to outdoor
recreation, from skiing and biking to walking and hiking.
o
Safety—personal and
property safety, and a generally secure feeling.
o
Colleges or universities
(for continuing education and a multigenerational vibe).
o
Sense of community
(often places with a vital and walkable downtown).
o
Proximity to
comprehensive, well-regarded health care facilities.
o
Good public high
schools, since many boomers still have teens at home.
o
Ease of getting around
(public transportation, traffic, access to an airport).
With the obvious
exception of the affordable housing criteria, it is clear why the outlook for
age-restricted housing is so good for this area.
In order to gauge
the current level of supply, I polled local real estate professionals and
developers of age-restricted projects, reviewed “for sale” advertising and
conducted internet searches. I located eleven projects now being marketed in
the area. Rather than searching all cities and towns in the
Portsmouth-Rochester NH-ME PMSA, I limited the search to towns along the coast,
and appealing inland towns, such as Exeter, Stratham, Dover and Durham. I also
extended the search slightly up the Maine coast, as well as down the
Massachusetts coast. While this was not intended to reflect an exhaustive
survey, the results are fairly comprehensive. This search was limited to
condominium ownership of independent living units. I have omitted developments
that are sold out, but there are only a few such complexes. I have included
projects that are simply targeted to elderly households. Also, when I
interviewed the Sales Manager at each complex, I inquired if they were aware of
any nearby developments that are proposed. Other than future phases of larger
developments reported here, none were reported. Operating on the assumption
that these individuals would know their competition, I conducted no further
search for future developments.
The findings of
this summary can be found at: http://www.sargentconsultingltd.com/downloads/55survey.pdf.
These eleven complexes will have a total of 738 units when complete. On
average, they are only 18 months old and are 35% built-out (including units
under construction). There is a wide variety of styles that includes detached
units and units in large multifamily buildings with 18 to 57 units. The
townhouses are most typically in duplexes, although there are triplexes, quads,
etc, right up to rows of eight.
The
complexes tend to be fairly large, averaging 34 acres, but with an average
density of only two units per acre. The tabular results depict a number of
amenities and features that surveys indicate buyers of 55+ housing desire. It
is quite evident that the complexes with the most features have the briskest
sales, or, in the case of older complexes, fewer units remaining. Earlier this
year the National Association of Home Builders conducted a survey of its
members to determine what features buyers in age-restricted communities
preferred. Features reported by more than 50% of the responding builders
included:
|
Full bath on entry level |
Covered porch |
|
|
Central heat and air conditioning |
Windows that can open easily |
|
|
Attached garage |
Easy to use thermostat |
|
|
Lever-handle/door knobs |
First Floor Master bedroom |
|
|
Storage space |
Wider hallways |
|
|
Garage door opener |
Separate shower and bathtub |
|
|
Wider doors (32 in. clearance) |
Separate dining room |
|
|
Bigger bathrooms |
Private patio |
|
|
Grab bars in bathroom |
Gas fireplace |
|
|
Separate living room |
Home office |
|
|
No steps at entrance |
Great room |
|
|
Cabinets with roll-out trays & lazy
susans |
|
|
As with any product,
a key to successful marketing is to give the buyer what they want. None of
these features appreciably add to the cost of a nicely built condominium, so it
is not difficult to build units that appeal to older buyers. This applies to
amenities as well as the individual features; The survey also revealed that
buyers want a fitness center, a club house, a meeting room, walking trails and
social activities. In fact, walking trails are a very significant amenity. A
2003 Harris Poll, commissioned by Del Webb, a nationwide developer of
age-restricted housing found that 87% of adults aged 44 to 56 expected to walk
for exercise in their retirement. The next closest was bicycling, at 37%. A
simple feature can be quite significant in the eyes of the buyer, yet less than
half of the complexes surveyed had walking trails.
On a per square
foot basis, the apartments are priced between $160 and $210, the attached units
are $148 to $200 and the detached units are $145 to $212. This pricing merely
reflects diminishing value for additional square footage as opposed to offering
any insight into the relative desirability of styles. More telling are that
prices are typically in the $200,000s for apartments and the $300,000s for
townhouses and detached homes. The larger units at Fitts Farm in Durham and the
Vineyards in Stratham sell well into the high $300,000s. These prices are equal
to or less than the prices of more homes for sale in the region.
Noticeably absent
in the region are homes in the higher price ranges. For example, the Wentworth
by the Sea development in New Castle was not age restricted, but a very
substantial number of its units were bought by “empty-nesters” and retirees.
Most of these homes were detached single family residences. Sales at the
Wentworth's seven phases began in September 1993 and the last new home sold in
March of 2001. In addition to the 105 properties sold, there were twenty three
resales, indicating an average sales pace of roughly 15 units per year. These
homes ranged from $300,000 (quite early in the project) to $3,300,000.
The success at
the Wentworth suggests that there is demand for higher value property by
elderly Americans, as well as the capacity to pay. The Seacoast is a relatively
prosperous area, with a median household income that is 17% above the national
average. Furthermore, older Americans tend to be wealthier. According to the US
Department of Health and Human Services Administration on Aging, “The net worth
of households increases with age until age 74…. The median net worth of the
elderly households (with a householder aged 65+) in 2000 was $108,885 as
compared to $55,000 for the total population.[4]
In light of these statistics, one would expect that there be more complexes
that target higher net worth households. In fact, all are priced very much in
line, or competitive to, prevailing prices for new houses and condominiums in
the region.
The eleven
complexes average 30% sold out, including reservations and units under
contract. The pace averages 3.2 sales per month, but with wide variations. Both
Bluebay Terrace in Hampton and the Village at Hampton Center are selling quite
slowly. Both of these are single buildings, located on small lots behind
commercial buildings on Route 1. This is apparently hurting sales. Every sales
agent I interviewed except for at these two complexes spoke quite
optimistically about sales. Sterling Hill in Exeter seems to be enjoying
stand-out success, at double the average sales pace. These units have
atypically high quality and are also larger than most of the apartments being
built. Another noteworthy factor is location. The Del Webb / Harris survey
found that among the most appealing factors were healthcare availability,
availability of recreation and proximity to markets and other retailers.
Windgate’s proximity to an area as popular as Newburyport seems to have been a
benefit.
Perhaps more so
than typical family housing, competent marketing is crucial. The study of
competing complexes revealed that most buyers are actually 65 and older, rather
than 55 and older. It is incumbent upon a developer to effectively market these
units to this segment with an emphasis on the existence of features these
buyers are known to want. It is also important to avoid the suggestion that
this is a “retirement community”. The colloquial has become “active adult”
communities, as this does not carry the connation of actually getting older. A
number of Sales Managers stressed that these buyers are highly informed about
the product and their choices. Many moves are the result of some sort of
necessity. Examples may include job relocation, a growing family, a big raise,
a recent lay-off, etc. The buyers in age-restricted communities are typically
under no such compulsion and must be convinced that this is somehow better than
their current living arrangement.
Finally, of all
types of housing, there seems to be the least public opposition to elderly
housing. It is widely believed that we are running out of places to build. This
is only partially true. There isn’t a shortage of land; there is a shortage of
land upon which developers are allowed to build. That shortage is created by
community resistance. This can be in the form of growth control measures, tight
zoning and planning requirements, various impact fees, regulatory process
delays, and the pervasiveness of the “not in my backyard” movement. Existing
public policy does not support a balanced supply of housing. Many towns have
zoning ordinances that encourage elderly housing. This will likely facilitate
construction of these projects, so there must be some vigilance to avoid
saturating the market as developers seek a path of least resistance.
Steven H.
Berg, MAI, SRA lives in Portsmouth and is the owner of Sargent Consulting, Ltd.
He is a graduate of Connecticut College, where he earned a Bachelor of Arts
degree, cum laude, majoring in economics and sociology. Steven has been
appraising a variety of property types in New Hampshire’s Seacoast area since
1987. He specializes in providing consulting services and litigation support
and has amassed considerable classroom education on a wide range of related
topics. Steven is both a residential and general member of the Appraisal
Institute. In addition, he is a member of the Portsmouth Housing Endowment Fund
Advisory Committee, is on the board of The Portsmouth Economic Development Loan
Program and is a member of Portsmouth’s Zoning Board of Adjustment.
[1] These figures exclude seasonal housing units and
second homes.
[2] My survey of competing complexes revealed that the primary
buyers of age-restricted condos are more likely in their mid 60’s to mid 70’s.
Therefore I have studied households of 65+ rather than 55+.
[3]
http://www.aarpmagazine.org/travel/Articles/a2003-03-27-mag-bestplaces.html
[4] http://www.aoa.gov/press/did_you_know/2003/july.asp