By Carrie Rossenfeld | San Diego
SAN DIEGO—Developers are focusing too much on Millennials’ current housing needs and not enough on the future, the London Group Realty Advisors’ principal Gary London tells GlobeSt.com. Part of that focus should be on more condo units, he says. We spoke exclusively with London about the issue of building for yesterday’s Millennial instead of concentrating on their future needs.
GlobeSt.com: Do you believe we are building too many rental units that will not be needed in the future?
London: I don’t think that’s the gist of it. I’ve been talking about the Millennial-market demand for 10 years—way before people heard the term Millennial and how it was going to be this giant population cohort that needed to be responded to. Coming out of the recession, it was responded to in an appropriate way. The apartment sector is very strong here in San Diego and in most parts of the country, both in occupancy and lease rates. The idea that we’re overbuilding the market at the moment is not where we’re taking it.
The concern I have is that when you build a building, it’s forever basically, and the Millennials are at an age that they’re very impressionable. Their needs and propensities are going to change significantly and very rapidly. The upper end is hitting their 30s, and the different between them and we Baby Boomers is that ultimately we became home-buyers at a higher percentage than our parents. Millennials are very reluctant and very late in buying homes. We need to be thinking about apartments over the long term.
GlobeSt.com: How should developers be approaching development for Millennials, knowing that their needs and desires will shift as they mature?
London: Builders are not, for the most part, building or responding to the changing needs of Millennials. The apartments they are building are not big enough for Millennials with families—there’s not enough square footage or bedrooms. We’re also still not seeing the construction of a lot of condos. My believe is that many Millennials will eventually either desire or act the same way their parents do and want to buy a home. Their first house, though, will not be a single-family home—it will be a condo—but we’re not responding to that sector yet and we’d better get going. The things that drove Millennials to apartments were that they didn’t want to be tied down, they were changing jobs and needed the freedom to move. They saw their parents get stuck. But now, that memory is fading, and many of them will want to buy units. We have thousands of units in the pipeline for Downtown San Diego, but most are apartments. There’s a condo shortage. My thinking is to shout, “Are builders building condos?” We will either need to build apartments to Millennials’ needs or convert them to condos when the time is right.
I think there’s an inclination to celebrate Millennials as they are today, and we have disregarded what their needs are going to be tomorrow. It’s OK if you’re talking about retail or office, but it’s not good when you’re building a residential unit because it’s hard to change a residential unit. Some designs we’re working on involve building a one-bedroom and a two-bedroom apartment side by side, and they can buy both.
GlobeSt.com: Do you see Millennials eventually returning to single-family home-buying in the next 10 to 20 years?
London: Yes. However, everything Millennial is the way in home-buying. They buy their first unit, and you can assume they will follow by buying their second and third homes. On the West Coast, there is a perpetual lack of housing—there will never be enough. The single-family home inventory today will be the same 10 years from now. That means pricing will get bid up, and Millennials will have to take longer to raise the income to save up for a down payment in order to be able to afford a single-family home. That’s going to be a delay in the need. But I don’t believe the American dream for a single-family home is eliminated—it’s just being severed to some extent to a portion of the population, but demand will outstrip supply in most of the coastal markets.