Feature: Meet Your Next Customer

Generation Y, the leading edge of which will come of home-buying age in less than four years, thinks, talks and acts differently, and they have decidedly different preferences in housing. Are you ready for this?

Source: BIG BUILDER Magazine
Publication date: 2008-11-22

By Amy Hsuan

In fewer than four years, the great population bulge that has been dubbed Generation Y will begin entering the new-home market, and as they move in, they are likely to change the way things are done in the home building business. As a group, they are considered bright, bold, brash, savvy, wired—and different.

There are 80 million of them—nearly twice the size of Generation X. The largest group of Gen-Yers will be shopping for their first homes in 2012, fueling what's expected to be the most active first-time home buyer market in history.

As a group, this generation has tastes and attitudes that differ from those of previous generations in just about every way imaginable, including housing preference, location requirements, and the process by which they will shop for a home.

“Their preferences are so different that it looks like we're facing a whole new game,” says Shyam Kannan, vice president and director of research and development at Robert Charles Lesser & Co., a national firm that consults on real estate trends. “They have a different value system for what they're willing to pay for. This is a huge shift.”

Home builders who understand and address the needs and wants of this emerging demographic will be poised to thrive, according to Kannan. Others will be left behind. “People who can get off the fence now will be well-positioned to cater to them,” he says. “[There are some builders who] say, ‘I've been building homes for 30 years; I know what I'm doing.' Well, that's not going to be the case anymore.”

So, get ready or get schooled.

Gen-Yers go by a lot of names: the Millenials, the iGeneration, the Echo Boomers. They're too young at this stage in the game to have branded themselves, but consumer analysts for years have been preparing for the coming of age of babies born between 1979 and 1996.

And make no mistake, there's good reason for all this nervous—and giddy—anticipation: At 80 million strong, Gen-Y represents a historic population spurt even larger than that of their parents. If the Boomers tweaked and remodeled the U.S. economy over the past half-century, Gen-Y is swinging a sledgehammer and ready to give the nation an Extreme Makeover.

“I see very positive things coming from this generation,” says John Zogby, president of Zogby International and author of “The Way We'll Be,” a report on the transformation of the American Dream. “They've got the experience levels and a very outward focus. They're going to make real changes in society.”

Gen-Yers grew up during a strong economic upswing. They have attained a higher level of education and are more assertive than the tides of young people that came before them. Technology has trained them to be more connected to both their peers and the world at large. They're also more racially diverse than any previous generation.

Photo: Courtesy Outlaw Consulting

“These are America's first global citizens,” Zogby says. “They've got experience levels that are so different from previous generations that they are finding better mentors among each other.”

Already, Gen-Yers make up a third of the nation's total population and influence as much as half of all spending in the U.S. economy.

They stand to amass even bigger bank accounts than their parents—with a combined earning power of a whopping $1.6 trillion. Over 35 percent of Gen-Y households earn more than $75,000 a year, compared to 40 percent of Baby Boomers. Considering the generation gap, that's pretty impressive.

In addition, studies show that Gen-Yers are signing titles and latching onto mortgages at younger ages than ever seen before. According to a Century 21 home buyer survey released early this year, Gen-Yers are becoming first-time home buyers at an average age of 26, three years younger than the average for Gen-Xers and Baby Boomers.

Still, the biggest sign of the times comes with the rise of a new breed of consumer—women with income and no kids, or WINKs, which now account for more than 70 percent of all females between the ages of 20 and 28.

These gals are serious spenders, and in the New Gen-Y World Order, they will command a certain superpower status with their burgeoning economic clout. They are poised to become the housing industry's next big wave of buyers, pulling in hefty paychecks that they spend at their own discretion.

And that force of will, according to experts, is precisely what sets these women apart from their mothers. WINKs—highly educated, assertive, and independent—are actually surpassing their male counterparts in earning and purchasing power, with more than half raking in more than $50,000 per year.

But more importantly, unlike the legions of female home buyers before them, WINKs are opting to buy homes before getting married or having children—a historic departure from the well-worn path their parents took to homeownership. For many of them, it's a matter of a financial investment, not building a nest.

It's a quiet revolution that will dramatically recast women as home builders' primary target, according to Holly Brickley, a strategic analyst with Outlaw Consulting, a Gen-Y-focused firm based in San Francisco.

“From all our research, women see themselves as having much more control over their financial destination,” Brickley says. “They have all the tools and powers to make that [financial independence] a reality. In terms of achievement stats, in high school and college, they're kind of kicking butt. It's not just a feminist ideal.”

Photos: Courtesy Laura Gonzalez and Ritchie Metzier EQUITY TRUMPS ENGAGEMENT: Laura Gonzales (center) and her boyfriend, Tobin McKenna (left), are in the market to buy a home as an investment—not to settle down—with the help of Ritchie Metzler (right), their Realtor with Portland, Ore.-based Urban Pacific Real Estate.

It's estimated that females will head more than 31 million households by 2010. In the past, many female heads of households ended up in that role because they were widowed or divorced. WINKs today are able to throw down for big-ticket items—and do so with striking regularity.

According to a CNN Technology study, women spend more on technology than men, doling out approximately $55 billion on consumer electronics in 2005 while men spent nearly 25.5 percent less at roughly $41 billion.

WINKs were brought up in a credit-crazy world and are accustomed to having high levels of debt, from student loans to car payments to credit card balances. It makes them better prepared mentally to commit to a mortgage, according to Suzanne Horton, CEO of Be Jane, a leading home improvement Web site geared specifically toward the growing number of women homeowners.

“Women are the fastest-growing segment in business in the U.S., and we have more aggregate spending power than any other group,” Horton says. “Home builders better sit up and start paying attention to these women. What women want is what builders should be building.”

When it comes to habitat, Gen-Y puts the models that worked for home builders, urban planners, and city leaders catering to their parents' generation to the test.

“They have a very different view on how they want to lead their lives and what they value,” Horton says. “And it's playing out the most when it comes to deciding where they want to live.”

Home builders looking to tap the Gen-Y market can all but kiss the suburban model with sprawling subdivisions and three-car garages goodbye, at least as this group enters the housing market. Gen-Yers aren't looking to hide behind privacy walls, nor are they interested in golf course-sized backyards.

This generation, more than any other, wants to be at the heart of the action—nestled in downtown areas, urban cores, and urbanlite environments. According to a report published by real estate trendspotters Robert Charles Lesser & Co., 77 percent of Gen-Yers prefer to live in an urban core, a preference that manifests itself at even greater levels among WINKs.

Eighty-seven percent of WINKs surveyed said they'd prefer to live in an urban or urban-lite environment, and more than 95 percent said they would make their housing choice based on whether or not they could walk to work.

Granted, it was the Baby Boom that gentrified declining neighborhoods in many U.S. cities throughout the 1970s and 1980s, only to eventually grow up to embrace the McMansion concept. In a similar vein, many Gen-Yers also started out as urban pioneers but are now living in the close-in suburbs vacated by retiring boomers.

Perhaps the biggest factor in deciding location and housing type for Gen-Yers and WINKs is proximity to work. “They don't want to commute; they don't want to commute by car,” Kannan says. “They want to live in a walkable place, and they're willing to pay more for fixed rail transit in urban cores.”

Size matters less to Gen-Y than to the Baby Boomers. They aren't nearly as interested in square footage as they are in proximity to work, dining opportunities, or retail. Sixty percent of WINKs surveyed said walking is a “vital” component of where they choose to live. And these women are willing to move to second-tier cities to be able to afford the lifestyle they want. Overwhelmingly, for WINKs, that includes being just a stone's throw from the outdoor activities, biking trails, and other recreational pursuits their lifestyles demand.

In other words, Gen-Yers in general and WINKs in specific don't ever plan on spending all that much time at home, even after they buy.

Gen-Yers are movers and shakers, and they plan on moving a lot, buying up houses along the way. According to Zogby, the average Gen-Yer will have held four different jobs by the time they turn 30 and 10 jobs by the time they turn 40.

“It means it's very difficult to see them planting roots in any one community and see long-term commitment the way things used to be,” Zogby says.

But that doesn't mean Gen-Y isn't committed to community. In fact, Gen-Y is more socially aware, globally networked, and community service oriented than any generation that came before.

When it comes to housing, they're looking for homes on smaller lots grouped closer together, where they can easily plug in to what's happening in their neighborhoods.

In addition, Gen-Yers want diversity—both in their communities and their housing options. Thanks in part to immigration trends, they are the most ethnically diverse generation the U.S. has seen—and it shows in their multicultural preferences. With one out of every three Gen-Yers a visible minority, it's no wonder that they gravitate toward cities and urban epicenters.

Laura Gonzales is a prime example of the Gen-Y shift. She's a WINK in the new-home market at the age of 25 with her boyfriend, Tobin McKenna, also 25. For the couple, buying a home together isn't a precursor to settling down by any means.

“Oh, no,” Gonzales says. “We're partners in an investment. This isn't a ‘settling down' thing at all.”

Gonzales grew up in Tigard, Ore., a suburb of Portland. She's traveled overseas, lived in Barcelona and Germany, and landed her first job out of college this year, working for an upstart sneaker company as their “community manager”—public relations for the Web 2.0 world.

Gonzales has a wish list that details must-haves for any WINK, and foremost among those demands is location. She wants a home—single-family detached, not a condo—in the city, where she can walk to dinner, get home easily and safely after a night on the town, and bike to work within 15 minutes or less. She is looking for something that can be easily customized—even gutted—to fit her need to entertain, throw dinner parties, and have friends over for game nights.

“It would be a shell of whatever we want it to be,” Gonzales says. “I hate cookie-cutter anything. We hate the suburbs, but we still want a neighborhood feel.”

Like many in her age group, Gonzales could practically click a mouse before she could hold a pencil. She has accounts on Facebook, MySpace, and a dozen other social networking sites. And she could probably send a text message blindfolded.

Such a media-saturated, brand-conscious world has turned members of Gen-Y into extremely savvy consumers. They're plugged in, they do their research, they know what they're looking for, they know how to find it—and they do it all instantaneously.

“Today's kids are comfortable with technology in a way that people from other generations don't understand,” says Reynol Junco, a professor at Lockhaven University in Pennsylvania and co-author of the book <i>Connecting to the Net.Generation</i>. “They are incredible multitaskers and were using computers sitting on their parents' laps.”

For Ritchie Metzler, Gonzales' Realtor with Urban Pacific Real Estate in Portland, tapping the Gen-Y market has meant completely revamping the tactics he uses for older home buyers. For him, reaching the younger crowd means a snazzy Web page, an engaging blog, and profiles on Facebook, MySpace, and any other site he can log on to.

“I am all over the Internet,” says Metzler, 31, who went into real estate two-and-a-half years ago after purchasing his own first home. “Every single site I can be on, I'm on. I don't do any marketing outside of the Web.”

Metzler sends out text messages to his clients the instant that homes come on the market. More often than not, they end up texting him because they found out about a new listing first.

More likely than not, Metzler and his clients will soon be keeping track of each other's movements via Twitter, an online service that allows users to send instant status updates.

“Gen-Y is doing so much more research now, they're looking at homes online before they even get in touch with a Realtor,” says Metzler, who's made Gen-Y his target clientele. “They are super plugged in, so you have to be that on top of it, too. It's a totally different approach to real estate.”

Also key is being able to relate to his clients. Metzler may be a few years outside of Gen-Y, but he gets what they're looking for. And he's learning to work with their parents, who are often helping them out with down payments.

These new tricks of the trade have paid off for Metzler in the midst of the housing slump. His clients—primarily young, unmarried, upwardly mobile professionals—are all looking to invest when the market is slow, and they're just the beginning of what's to come.

“I'm busier now than I've ever been in real estate,” Metzler says. “There are so many good deals, so many great options. And this niche market is totally where it's at.”

Home builders, it would seem, are totally going to have to learn to talk like that.

The Gen-Y giant is no laughing matter to companies competing for their loyalty. With more earning power and buying clout than any previous generation, Gen-Y's purchasing decisions say a lot about what wins their hearts and dollars.

In a nutshell, here's what's in: products and brands that are socially or environmentally conscious, employ simple advertising and design, and embrace individuality. What's out: anything corporate, mass-produced, or harmful to the environment.

Here's your cultural reference guide to unlocking the Gen-Y brain:

MOVIE: Napoleon Dynamite

MUSIC: Riot Grrl rock, Gym Class Heroes, anything that blends genres from hip-hop to electronica to rock ‘n' roll

T.V. SHOWS: Sex and the City, reality shows

FAST FOOD: In-N-Out Burger

FURNITURE: IKEA

SNEAKERS: Adidas and Converse

TECHNOLOGY: Apple

AIRLINE: JetBlue

NON-ALCOHOLIC BEVERAGE: Vitamin Water

ALCOHOLIC BEVERAGE: Red Stripe and Pabst Blue Ribbon (a.k.a. PBR)

CLOTHING: American Apparel, H&M, and Levi's

AUTOMOBILE: Volkswagen

GROCERY STORE: Trader Joe's and Whole Foods

BIG-BOX STORE: Target

WEB SITES: MySpace and Facebook

BLOGS: engadget.com, productdose.com, thecoolhunter.com

SOURCE: OUTLAW CONSULTING RESEARCH REPORTS