McMansions dead? More multifamily homes built in NJ
In: apartments, townhouses and condos. Out: McMansions.
Multifamily homes in New Jersey are making up the biggest percentage of new construction on a record that dates to 1960. And some observers think it signifies a major shift away from the sprawl that consumed open space to high-density living, where people can get around without a car.
Driving it is the giant millennial generation in their 20s and 30s, experts say, who are burdened with student debt and haven't bought into the long-standing American ideal of owning a home that has a lawn, garage and good school system. As a result, prices of single-family homes that once were viewed as the symbol of success could flatten.
For baby boomers now reaching retirement age, "our desire was to own a big house in the suburbs, a big backyard," said Peter Reinhart, director of the Kislak Real Estate Institute at Monmouth University in West Long Branch. "I don't think that's the major interest of most of the younger generation."
Four-year trend
New Jersey's residential construction industry is crawling back after the devastating recession saw the number of annual permits fall to a 50-year low. But the recovery looks different than in previous examples. For the first 10 months of 2014, a little more than 60 percent of approved permits in New Jersey were for multifamily homes, beating the previous record in 1964, according to statistics compiled by Patrick J. O'Keefe director of economic research for the CohnReznick accounting firm.
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It marks the fourth consecutive year multifamily permits have been the majority of construction, O'Keefe found.
There is no shortage of examples at the Shore: BNE Real Estate Group is building The Waverly, a collection of 272 apartments between Route 66 and Jumping Brook Road in Neptune, and Hovsons Inc. has proposed building 312 apartments nearby on Route 33 and Hovchild Boulevard; The Oceanport Village Center at Port Au Peck Avenue and East Main Street, with ground-floor retail and 36 second- and third-floor apartments; the West Side Lofts on Bridge Avenue in Red Bank, a five-story building with apartments and townhouses; and Pier Village in Long Branch, where its new owners, Kushner Cos. and Extell Development Co., plan to complete the third and final phase of the oceanfront project.
It will include condominiums, retail space and a boutique hotel, the developers said last month.
The rise in multifamily development is a response to millennials, a generation that was raised in the digital age and now is ready to strike out on its own. But for many, a home isn't an option. The economy, particularly in New Jersey, is recovering slowly from the recession. Wages have been stagnant. And consumers during the third quarter had $1.13 trillion in student loan debt, $99 billion more than a year ago, according to the Federal Reserve Bank of New York.
Millennials aren't deluded
Meanwhile, they watched in 2008 as the housing bubble collapsed, foreclosures rose and credit was ruined. "They're not deluded into thinking that housing prices can only go up," O'Keefe said.
Millennials said they wouldn't shy away from owning a home, but they sound less interested in the status that comes from owning a giant home that might be featured on, for example, MTV's "Cribs."
Felicity Baker and Britni Pirog go to Brookdale Community College in Middletown, where they study nursing. Growing up in Neptune City, Baker, 19, said she came to appreciate being able to simply walk from her home around the corner to the pizza place, where she met with her friends.
Pirog, 20, of Wall, agreed.
"I don't picture myself in a mansion," Pirog said. "I picture an eco-friendly home. I picture a more comfortable-sized home."
If the trend sticks, it would mark quite a turnaround for New Jersey, long noted – and often ridiculed – for its suburbs, malls and traffic. What exit do you live on became a calling card, and for good reason. The state's development in the 1980s, '90s and 2000s slowly shifted from high-density dwellings served by mass transit to sprawl, where home owners needed a car, said John Hasse, chairman of the department of geography and environment at Rowan University in Glassboro.
What's the definition of sprawl? Hasse looks at it this way: If you have to get in your car and drive your children to go trick-or-treating, your development is considered sprawl.
"I see that with students who are interested in moving to Philadelphia and funky old towns," he said. "I really see a change in perception and attitude and culture that's related to this bigger question: How do we live? What do we consider a community?"
Dangers for McMansions
It bodes poorly for the McMansion market. Baby boomers who owned those homes and have become empty-nesters might need to lower their prices to find a buyer. But not everyone agrees the trend is here to stay.
"Bigger, better, more is still a fundamental theme of human nature," said Kira Sterling, chief marketing officer for Toll Brothers, a Horsham, Pennsylvania-based company that specializes in luxury homes. "You can't conclude based on an average of what's offered that smaller is in and bigger is out. It's not consistent with what we're seeing."
Still, Toll Brothers is ramping up its apartment division to give the company more product diversity, Sterling said.
Reinhart at Monmouth University also was skeptical that the surge in multifamily development will last. Rising rent might convince some consumers it is wiser to own. And millennials will get older, have families and, perhaps, search for more room to move, much like generations before them.
"The demographics will shift back to homeownership demand," Reinhart said. "But it's going to take a while."
Michael L. Diamond; 732-643-4038; mdiamond@app.com
MORE MULTIFAMILY HOMES
Below is a list showing the total numbers of residential building permits issued annually in New Jersey and the percentage of those that were dedicated to multifamily units, such as apartments, townhouses and condominiums.
2000
Permits: 34,585
Multifamily: 27 percent
2001
Permits: 28,267
Multifamily: 23.9 percent
2002
Permits: 30,441
Multifamily: 26.5 percent
2003
Permits: 32,984
Multifamily: 32.8 percent
2004
Permits: 35,936
Multifamily: 37.6 percent
2005
Permits: 38,588
Multifamily: 42.3 percent
2006
Permits: 34,323
Multifamily: 50.1 percent
2007
Permits: 25,389
Multifamily: 48.5 percent
2008
Permits: 18,363
Multifamily: 50.1 percent
2009
Permits: 12,421
Multifamily: 42 percent
2010
Permits: 13,535
Multifamily: 45.5 percent
2011
Permits: 12,952
Multifamily: 50 percent
2012
Permits: 17,939
Multifamily: 59.4 percent
2013
Permits: 24,209
Multifamily: 57.1 percent
2014*
Permits: 23,738
Multifamily: 60.7 percent
*January-October
Source: Patrick J. O'Keefe, CohnReznick.