Half Condo, Half Hotel

Meet David Hess, a 47-year-old business executive and father of three children who found himself divorced and looking for new living arrangements. He had three main criteria: a place where his children would feel at home on weekends, a location close to their mother's suburban house, and a situation that accommodated his extensive travel. Solution: He settled in AVE in Clifton, N.J., a hybrid between an apartment and an extended stay hotel.

AVE, a project of Korman Communities, is located near a mass transit center. It offers both furnished and unfurnished apartments, and tenants can sign a lease for the unfurnished units for six months or longer. The facility provides concierge services, cafe breakfasts, a fitness facility and weekly social events. Korman's six AVE projects around the country (three in New Jersey, two in Pennsylvania and one in Virginia) are evolving into small "neighborhoods," says Lea Anne Welsh, who developed the AVE concept for Korman.

Reports Antoinette Martin for the New York Times:

Dozens of no-longer-married adults, many of them with children, have signed leases for a year's term or longer at each of the complexes [Welsh] said; divorced fathers account for about 25 percent of all tenants at the 785 units in New Jersey and 508 in Pennsylvania.

The price of these units are not for the "faint of wallet," Martin observes. An unfurnished, two-bedroom, two-bathroom suite in the Clifton facility can range from $2,595 to $3,330 a month when leased on a yearly basis. That's pretty steep, but it's probably no more than many tenants would be laying out for mortgage payments on a single-family dwelling in the tonier subdivisions ringing New York City, Philadelphia or Washington, D.C., much less the cost of maid service and health club dues.

If Hess is typical, affluent Baby Boomers are leading the demand for these hyper-flexible, low-maintenance living arrangements. Divorced Boomer executives have lots of disposable income but their lives are in transition, and they are super short on time. The last thing they want is the headaches that come with maintaining a single-family house and garden. If the apartment complex provides concierge services that make life a little easier, so much the better. A flexible lease length gives them the time to look for more permanent arrangements, but they may well conclude they like the hassle-free lifestyle just fine.

Korman's price point limits the market to the top one or two percent of income earners in the country. But don't be surprised to see imitators fielding stripped-down versions of AVE -- less luxury, fewer premium services -- that package a mix of convenient location, low maintenance and extra amenities for stressed-out, time-deprived divorced moms and dads.

Just another wrinkle in the ever-changing pattern of family structures, living arrangements and housing options brought to you courtesy of the Baby Boomer generation.

(Photo credit of Korman facility in Arlington, Va.: AKA.)

Boomer Sociology and Housing Demand

One of the factors driving the boom in United States housing construction over the past decades has been an under-appreciated sociological phenomenon: the atomization of the American family. Once upon a time, it was perfectly normal for multiple generations to live within the same household. But the American ideal changed: After World War II, the expectation was for every nuclear family unit to live in its own abode. Gramps and Granny live in their own place, mom and dad in their's. And as soon as Junior and Missie become financially independent, they move out and live on their own as well.

Atomization of the family has driven an increase in the number of households, which in turn has increased the demand for separate dwelling units. No matter how small the household, every abode needs minimal accommdations like a kitchen, bathroom, bedroom and dining room. A consequence is that the average dwelling size is larger than ever. Combine this with the trend toward McMansions for the affluent, and the median floor area of a new single-family house sold in the United States has trended steadily higher since 1982: from 1,630 square feet to 2,235 square feet in 2007 -- a 37 percent increase in 25 years.

As Americans have discovered in the past year, however, housing is not always a great investment. It's really a form of consumption. As Americans look for ways to cut expenses and save more money, one place they'll examine is where and how they live -- and with whom they live.

In a recent posting, "More than Roommates, Less than Lovers," we noted an emergent phenomenon of Baby Boomer women -- widows and divorces for the most part -- moving in together for reasons of economy (maintaining one house instead of two) and companionship.

That's not the whole story. I haven't uncovered any hard numbers yet, but the number of adult children in the United States living at home -- the so-called "boomerang" effect -- appears to be on the rise. As an indirect measure of the phenomenon, I would note that key words "adult children living at home" generate 2.1 million Google hits. Dr. Phil has addressed the topic on his television show, there is a website devoted to the theme, http://www.adultchildrenlivingathome.com/, and Web is ablaze with advice on how to handle the problems that ensue from two adult generations living under the same roof.

Now comes a survey from Canada, where the trend apparently is far advanced. In a survey of young adults (18 to 24), global research firm Synovate has found that 40 percent live with their parents. That compares to 49 percent globally. (I recall hearing that the number runs as high as 75 percent in Italy.)

I don't know if 40 percent of young American adults will wind up living with their Baby Boomer parents, but the survey suggests that there is precedent in a neighboring, culturally similar country for the number to rise. It would be foolish to assume that the sociological underpinnings of the demand for housing will continue to trend the same direction that it has for the past 60 years. If the atomization of the American family reverses itself, or if households reconstitute themselves around non-kinship groups, our existing housing stock can stretch a lot further.

This is bad news for the housing industry. As children live longer with their Boomer parents, as more single Boomer women merge households to economize on housing expenses, as Boomer households morph into new forms, demand for housing could remain depressed for years.

(Image credit: Rezoom.com)

"Hope I Die Before I Get Old" Is Not a Life Plan

Attention in the business media is turning from the alarming drop in value of Baby Boomer retirement savings to a more fundamental problem: the generation's unprecedented indebtedness. As the Wall Street Journal notes today, Boomers have bigger problems than shriveled 401k plans. Over their lives, they've consumed most of their income rather than save it. Writes the Journal:

"What Baby Boomers of all persuasions have done, without dispute and to an unprecedented degree, is spend money instead of saving it. During the 1990s, Baby Boomers accounted for about half of all consumer spending in the U.S., according to a recent McKinsey Global Institute study. ... Their appetites buoyed sales of everything from Bavarian sedans to Sumatran coffee to Swedish furniture."

U.S. household savings plunged to 2 percent of income during the 2000-2005 period, down from 10 percent two decades earlier -- just as Boomers' earnings were peaking and they should have been saving. Citing the McKinsey study, the WSJ article notes that the average Boomer household (where the head of household was 50 years old) carried $122,000 in debt. That compared to $50,000 in inflation-adjusted level of debt for comparable households twenty years previously.

Writes WSJ reporter Joe White: "Millions of Boomers are realizing that 'hope I die before I get old' was just a sarcastic line in a rock and roll song, not a life plan."

It gets worse. White raises the terrifying prospect of a massive imbalance in supply and demand as the 78 million Boomers try to sell into a real estate market in which the much smaller GenX generation is buying. Think real estate prices have fallen a lot already? Just wait.

White touches upon the idea that Boomers will find it extremely difficult to dig their way out. They've built their lifestyles of McMansions and SUVs around cheap credit and cheap energy. The cheap credit has dried up. So has the cheap oil. The article closes with a quote from Wharton business school professor Olivia Mitchell: "The Baby Boomers are going to have to work longer and eat less. And go back to what my mother was doing -- saving string."

In reality, the situation is even worse than White describes. Even if Boomers were inclined to embrace thriftier lifestyles -- and there is evidence that they are -- they can't shed their old ways without some pain. Many are saddled with expensive-to-maintain assets that can't be sold without a loss.

Take houses, a major source of Boomer net worth that Boomers counted on tapping when the kids fly the coop. Many Boomers bought McMansions on the suburban frontier during the cheap-energy era when land and housing prices were cheaper. As traffic congestion, long commutes and higher energy prices nudge households back to the urban core, housing values on the metropolitan periphery have fallen steeper than the national averages.

How about those low-mileage SUVs? Richmond, Va.-based CarMax, the nation's largest retailer of used cars, learned what happens when everyone unload their gas guzzlers at the same time. The price of used SUVs and trucks plunged 25 percent over three months earlier this year, obliterating millions of dollars in the value of its inventory. The Boomers face a devil's dilemma: Take a big financial hit up front by selling the gas hogs now, or take it over several years each time they fill up their gas tanks.

Indebtedness... lack of savings... houses built in poor locations, with values that continue to decline... energy inefficient automobiles and long commutes... Boomers are boxed in by the choices they've made over their lives. Boomer angst will likely get worse before it gets better.

(Image credit: Spoleto Today.)

Universal Design and Boomers

In a non-news news release from the folks at the Industrial Design Group of GE Consumer & Industrial (the appliance group), we see some good news.

Mainstream appliance makers like GE are finally realizing how the changing demographics of more older adults impacts their business. In the release, they talk about a research process they have been implementing with Carnegie Mellon School of Design to figure out how to apply "Universal Design" concepts into new product developments.


As they report: “The time has come for kitchens and homes that fit the real needs of real people—needs that will change over time.” It is their intention to be a leader in this effort. GE already has a Web site with examples of kitchens with universal design principles and appliances.

This is good news, and about time. We've talked about universal design as it relates to homes since 2004. The in-home "aging in place" business -- remodeling, retrofitting, upgrading -- is going to be a huge business over the next 20+ years as Boomers grow older and face diminishing physical capabilities.

We'll be watching for more major players to seize this opportunity.