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Millennials Prefer Single Family Homes

by Connie Yoshimura

     Lots of articles have been written about what the ‘millennials’ are looking for in a new home, as they emerge from their parents’ spare bedroom. Spurred on by low interest rates, a better job market, and lower down payments, this 25-to-35 year old age group is slowly, but surely, embracing the idea of home ownership. Their ultimate buying power will rival that of the aging baby boomers, but the big question, in the mind of builders, is what do they want for their first home?

     Although these ‘millennials’ have embraced technology and the latest gadgets, their quest and desire for home ownership is not much different than their parents. According to a recent survey by the National Association of Homebuilders (NAHB), 75% want a single family home. Only 10% would opt to live in the city center. Almost 25% would prefer a rural setting, near parks and walking trails.

     NAHB also reported that for the first time, the size of the single family home decreased as millennials look for smaller, more affordable residences. So what are they asking for? As you can expect, they like electronic features such as programmable thermostats and energy-efficient appliances, and are willing to pay 2-to-3% more for an energy-efficient home as long as it saves in their utility bills. They also want laundry rooms (not closets), bigger garages, pantries, linen closets and will accept an unfinished area, particularly if it is a daylight or walk-out basement. They are willing to commute farther out from their employment centers in order to obtain their housing objective.

     They also don’t want cheap when it comes to finishes, i.e. granite or quartz for countertops and a neutral pallet of white, cream and taupe with a splash of color here and there that can be easily changed out. They like the latest pantone color of the year (marsala) and a bright front door. They’ll gladly go over their lighting allowance for some drama in their light fixtures, as it visually helps define their personal taste.

     These requirements are all relatively expensive, particularly in Anchorage, where garages must be heated and all building products imported, making the only option a smaller lot and a smaller, energy efficient home. For energy efficiency, Alaska is on the right track. As of July 2014, all new homes must be built to five star standards in order to qualify for AHFC financing.

Finding Solutions to Anchorage’s Housing Crunch

by Connie Yoshimura

     Micro units are just one of the many ideas being considered in the discussion about how to solve Anchorage’s housing shortage. According to the Urban Land Institute, the micro apartment is typically less than 350 square feet with a fully functional, self-contained bath and kitchen. Under this definition, single room occupancy (SRO) with a communal kitchen or bathroom does not qualify as a micro unit. Micro apartments have been built in New York, Philadelphia, Seattle and other urban areas. The size of the unit is dictated by municipal regulations. Now this housing concept is being discussed and looked at in Anchorage, particularly in the downtown area, as a revitalization opportunity.

    In other urban communities, units have been built that are 30 feet wide and ten feet deep with a kitchen at one end and a bath at the other. Bathrooms and kitchens are the most expensive components of any housing unit, regardless of its overall size. Bedrooms and living space are the least expensive square footage costs. Therefore, it is difficult to analyse how these units would make rental income sense if built in downtown Anchorage where there exist the added expense of seismic ground costs and earthquake insurance issues. Renters interested in micro units are primarily low wage earners in retail and food service. To pencil out for investors or builders, a tax abatement may be necessary. Given the high cost of land and infrastructure development, even with a tax abatement, which is a very modest component of the overall costs, I doubt these micro units would produce enough rental income to be financially viable. Planners also need to keep in mind Anchorage’s unique lifestyle opportunities; its plethora of trails and parks, and easy access to our great outdoors attracts the ‘millennials’ to our community. A 300 square-foot micro-apartment doesn’t have enough room for bikes and other outdoor gear.

    Perhaps a more viable (but more politically difficult to implement) concept would be an overlay district adding accessory dwelling units to existing lots south from the park strip to Fireweed Lane, and west from C Street to the Inlet.  This area already has single family homes, duplexes and condominium developments. It is a popular walking area with existing sidewalks and alleys where carriage units above a garage can be economically built. This overlay district would allow individual property owners to augment their mortgage costs by adding a unit for rent. These additional units are already being constructed on R2 zoned lots that have previously been developed as single family only homes within that district. These units would add to the tax assessed value of property rather than the reverse. It would generate income for the property owner and the MOA. Its only obstacle is the ‘not in my backyard’ objection by existing property owners who are unwilling to accept the city’s need for more housing. This area is close enough for walking and biking to the downtown core area and would help revitalize it. The popularity of City Market and Fire Island Bakery is a good testament to a more creative approach to the downtown dilemma.

    Moving away from the downtown area, another more modest solution to creating more affordable housing would be the passage of a small lot ordinance. Right now, the minimum size for a fee simple, single family lot is 6,000 square feet with a minimum width of 50 feet. The largest cost for the development of any lot is the extension of roads, water and sewer across the lot frontage. Reducing the width of the lot to 40 feet would reduce the cost of the lot by 20 percent.

    The emerging housing market for millennials, ages 25 to 35, is not for micro units, SRO’s, or even a carriage unit above a garage facing an alley. According to the National Association of Homebuilders 2014 study, 75 percent of this home buying group prefer to live in a single family home. Only 10 percent would consider living in an urban environment. And 25 percent would drive to a rural area in order to purchase a single family home with a double car garage and a laundry room.

The First Quarter Was Good for Real Estate

by Connie Yoshimura

     The Anchorage real estate market is holding steady, despite a bump in residential inventory for the first quarter of this year. Sales volume jumped from $167 million to just over $189 million, a 13% increase in volume. However, to accomplish an agreed transaction, there is a little bit more negotiation with homes now selling 1.5% below an adjusted list price. And MLS reports an almost 5% reduction during the past six months from the original list price to the final price. These adjusted sales prices also do not take into consideration closing costs which is an increasingly popular buyer request. These statistics indicate an active buyer’s market, but sellers need to price right and be prepared for some negotiation. Increased inventory is occurring above $500,000 and there is currently a 21 month supply of homes between $750,000 and $999,000. Overall, however, there is only a 2.43 month supply of homes for sale in Anchorage and in Eagle River that supply is 2.6 months.

     The average sales price continues to hover around $350,000 where homes in good condition can still expect multiple offers. Eagle River had 81 sales the first quarter, more than any other area. It’s popularity is due in large part to its close proximity to Alaska’s scenic beauty. Other areas where increased sales occurred over last year include Abbott/Dearmoun Road and Boniface/Muldoon. The latter area has a significant number of moderately priced single family homes.

     Unfortunately, new construction is not benefitting from this increase in buyer activity. Single family permits are actually down from last year’s first quarter which had 52 new permits issued compared to only 43 this year. Duplex permits were exactly the same at 26. The big increase in residential permits came in the multi-family category, an increase of 50 units to 148. The multi-family category can be either for rent or sale. Combining residential, multi-family and commercial first quarter construction activity was down $55 million, $120 million compared to $177+million last year for the first quarter. So far this year, Spinell and Hultquist Homes each have permitted seven single family homes. Spinell has also permitted 14 duplex units and Petersen six. Not much activity for a community of 300,000.

     Residential alteration or remodeling continues to increase with 142 permits compared to 122 last year. Elevator permits, which are counted separate, have had a light increase to 31 for the first quarter. As our population ages and baby boomers decide to age in place, many are opting to remodel which includes an elevator.

     Low interest rates continue to spur buyer activity with many buyers deciding now is the time to buy before mortgage rates go up late summer or fall. Despite the concerns over Alaska’s economic future, the need for a new home persists due to marriage, birth, death, divorce and job change. Our population growth the past few years has been as a result of births, and the demand to move up to a larger home with more bedrooms is a common reason to make a move in today’s market. That need is not going to change regardless of interest rates or lack of inventory.

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503
907-646-3600