In the final two posts of my “Trends” series, I’m going to take a less global perspective and focus in on the two primary components of modern cities. As I’m sure you’ve guessed from the title, in this post I will be looking at how our concept of what a home should be is changing. And more specifically, how that evolving concept will affect the physical form of residential property and the broader urban form of cities generally. The next post (and the last in the series) will do the same for commercial property.
One of the biggest mistakes made by the city planning profession over the last 70 years is the idea that cities should be neatly divided up into zones and that each zone should be limited to a narrow set of homogeneous uses. The primary example, of course, being the various single-family residential districts that occupy the vast majority of the zoning map for nearly every midwestern city. The only form of development allowed in these districts is a single-family home, perhaps interspersed with the occasional church or elementary school. Somehow planners became convinced that allowing duplexes or triplexes to be mixed with single-family homes would destroy the neighborhood – and we so successfully sold that idea that we have created armies of NIMBYs that howl in opposition whenever an apartment complex or senior living facility is proposed anywhere near their home.
The fact of the matter is that, if appropriately designed, residential buildings of various densities and forms can be blended together in a way that creates a very livable and stable neighborhood. Probably more stable in the long-run, in fact, than the mono-culture neighborhoods that we have been building since the 1950s. Our country reacted to the chaos of World War II, racial desegregation and anti-Vietnam protests by building suburban neighborhoods that provided sanctuary from the chaos and virtually guaranteed that we would be surrounded by people just like ourselves. We are finally learning that it is better for us as individuals and us as a society to have regular exposure to people of different generations, different races and ethnicities, and different economic circumstances.
This development pattern has been slowly disintegrating for the past decade or two due to the societal trends that I have been discussing in prior posts, but that process will accelerate over the next decade. The very definition of how a home functions in our day-to-day lives has changed and will continue to change, which means that the form of residential units and residential neighborhoods will change as well.
Despite the fact that the changes I’m about to describe may seem substantial, the initial impact on the form of cities will be fairly muted. That is because the structures we build last for a long time, which means that cities change slowly. There are more than 140 million residential units in the US housing stock, and we add between 1.1 and 1.3 million new units every year. We also demolish between 200,000 and 300,000 units every year leaving a net impact of well below 1 percent of the housing stock. Many of the new residential units will be conventional single-family homes because, believe it or not, many people do not perceive the need for change as sharply as I do. Thus, the impact of the new residential forms that I will be describing will be modest for at least the next few years.
Modest, however, does not mean trivial. For example, the number of single-family homes built between 1996 and 2000 averaged about 1.2 million units per year. Twenty years later between 2016 and 2020, the number was about 840,000 units per year – a roughly 30 percent reduction. The “American dream” of a single-family home in the suburbs has become a lot less achievable, and perhaps a lot less desirable, over the past 20 years. I am not predicting the demise of new single-family subdivisions built on the edge of metro areas, but they will continue to lose popularity to other housing forms and to housing in more central locations. Exurban communities planning on being the next suburban boom-town in their region should rethink their plans.
Climate Change
There are three different ways that residential design will be affected by climate change activism. The most obvious, of course, is improved energy efficiency. This is a long standing trend that started decades ago as a way to save homeowners money. The economic rationale has now become secondary to the goal of saving the planet, but the result is largely the same – every building code update includes higher standards for insulation requirements, air tightness, and efficiency in appliances and lighting. The result is that residential structures built today are much more energy efficient than those built just 20 or 30 years ago.
For the past several decades (and probably more), the levelized cost of energy saved by more efficient buildings has been cheaper than any form of electrical generation. [1] That may change as wind and solar generation costs continue to drop, but the goal of reducing greenhouse gasses is likely to continue the push for more efficient homes. The downside of this trend is that improving energy efficiency has increased the upfront cost of buying a home significantly. The pushback from affordable housing advocates may some day match the momentum of climate change activists but not quite yet.
The second climate change impact will be through small scale electrical generation and storage. Homeowners have been putting solar panels on their roofs for years and that market was booming until two things happened. First, supply chain disruptions due to the COVID pandemic caused prices of both solar panels and battery storage systems to rise for the first time in the past 7 years. [2] That problem is likely temporary and on-going innovations in the industry will eventually result in falling costs for solar panels once again. Batteries, on the other hand, are more problematic because of demand from EV manufacturers. Demand for lithium-ion batteries is skyrocketing and many in the electric vehicle industry say that this will be a long-term problem.
Rooftop solar does not have to be paired with on-site battery systems, of course, but that brings us to the second issue that is holding back residential solar installations. Utility companies are increasingly active in fighting current “net metering” rules which give energy credits to homeowners when they produce more energy than they use. In many locations, utility companies are required to compensate residential solar systems at retail rates (the cost consumers pay when they buy electricity). Utility companies claim (with some justification) that paying retail rates for rooftop solar amounts to a significant subsidy that is being paid by everyone else. So far, utility companies seem to be winning the debates, and so the long-term economic rationale for individual rooftop systems will become less persuasive unless they are paired with battery storage so that all the electricity produced is used on-site.
What I think will eventually supplant individually owned solar panels on residential roofs will be modestly scaled, community solar systems linked to utility-scale storage systems. [3] A residential subdivision or apartment complex, for example, could build an array of solar panels linked to a storage system (probably not using lithium-ion technology). Using a micro-grid approach to connect with the local utility company would allow every resident to:
save on their electric bill by sharing the power generated from the solar panels,
have some emergency power supply from the storage system if the larger grid experienced an outage, and
eliminate operational and maintenance headaches of solar systems for individual homeowners.
The third climate change impact on residential development will be on location. As noted above, buying a home on the outskirts of town is becoming less popular. As home buying shifts to the more climate aware Gen-Z, this trend will accelerate. Some urbanists will disagree with me on this point, arguing that work-from-home and autonomous vehicles will encourage people to tolerate longer commutes in exchange for the increased affordability and more pastoral character of housing built on the urban fringe. I’m not buying it however. Anyone concerned with climate change understands that a 60- or 90-minute commute is not good for the environment even if it is in an electric vehicle and only happens twice a week. And I don’t care how many emails you get answered, no one wants to spend 60 minutes or more stuck in bumper-to-bumper traffic even if the car is driving itself.
The result is that mid-town and first-ring suburban locations are experiencing (and will continue to experience) a resurgence of development interest. Assuming these areas are willing to allow redevelopment at somewhat higher densities, the older parts of the metro area that were losing population just a decade or two ago could become relative hot spots. Not every community will embrace this type of change, but those that do will experience an influx of people and disposable income that will create new commercial opportunities and expand tax revenue so that aging infrastructure can be replaced and improved. Planners will need to find ways to minimize involuntary displacement of lower income households, but the trend is likely to be almost impossible to stop.
The Age of Ideas
A lot has already been written about how the idea-centric jobs of the information economy can theoretically be done from anywhere and how the COVID pandemic forced both workers and employers to implement that capability with new technology. Now that the work-from-home genie is out of the bottle, it will be impossible for work to go back to the way it was. The younger generations in particular, are seeing the flexibility of work-from-home as an almost non-negotiable perk. Although 100% remote work seems likely to be fairly rare, hybrid schedules I think will be the new normal. And while a lot of discussion has taken place about what this means for work, what hasn’t received nearly as much press are the changes to the “home” side of the work-from-home arrangement.
The fact of the matter is that our definition of the activities encompassed by “home” is now much broader and that new reality needs to be addressed by the physical structure of our home. During the pandemic we not only worked from home, but many families also schooled from home. Trips to the gym were replaced by exercising on all sorts of new home exercise equipment that gave us the ability to have virtual workout classes from our living rooms. In addition, the burgeoning field of tele-medicine may turn our home into a clinic. Our poor guest bedroom now has so many functions to play that actual guests should probably just get a hotel room.
Office buildings, schools, gyms and clinics have all reopened but I think it would be foolish to assume that everything we did during the pandemic will go away. The convenience offered by virtual Peloton classes is real and while some may return to the gym, others will not. Schools are back in session for now but the next severe COVID variant, or severe flu season, or even severe snow storm will trigger calls for remote learning rather than simply giving kids a week off. And if you could trade a 30-minute wait in a disease infested doctor’s waiting room for a diagnostic device in your home and a video chat with your doctor, wouldn’t you do it?
What we haven’t faced up to is the fact that what we tolerated because of the pandemic was far from ideal in some respects and should not be accepted as the new normal. Setting up your laptop on the kitchen counter for a Zoom call while the kids are eating breakfast is not what work-from-home should entail. It is not good for your work life and it is not good for your family life. If all of these new capabilities are really going to improve our lives, then the physical form of our home needs to change.
To begin with, the open plan design of many new homes is likely to take a step backward. This will be particularly true for larger homes designed for families. Anyone who is serious about working from home in a professional and productive way is going to have a strong preference for an office space that can be acoustically isolated. The space does not necessarily need to be large, however, since most office jobs are largely paper-free which means most people will not need printers or file cabinets (and glass doors can make it seem visually larger than it actually is). The essentials are just a desk large enough for a laptop and a couple of monitors, a high quality office chair, good lighting and perhaps a wireless keyboard. The other essential is a configuration that allows a wall or shelving to be in the background – tastefully curated, of course, with professional or personal items. Participating in a video meeting with your bed or closet in the background is so 2020!
Smaller homes or apartments may not have room for a dedicated office, but designers should be looking for nooks or corners that can be marketed as a home office space and are located away from the hubbub of the kitchen and bathroom. It would also not surprise me to see furniture makers get creative with “murphy bed” style office furniture that folds away when not in use so that the dining room or guest bedroom can function as an office during the day and yet be transformed to another use when needed. Finally, apartment complexes may create a co-working space as an amenity for their residents just like having a pool or workout room.
Another thing to keep in mind about the economics of the Information Age is that there is a darker flip-side to the lucrative jobs for programmers, scientists and Fintech geniuses. Automation and robotics will eliminate many mid-tier jobs or make them so simplistic that they no longer command a good salary. This is likely to push more and more people into the “gig economy” where they act as solo entrepreneurs or loosely affiliated contract workers. Many of these people will be based out of their homes and may need specialty spaces. Examples include many manual labor occupations such as lawn maintenance, electrical work, clothing alterations or handyman services. But it can also include high-tech work such as 3D printing or laser cutting for prototyping, low volume parts production or various artistic endeavors.
Virtual Reality and Augmented Reality
The final trend that is just beginning to show up in homes now but which will probably be fairly common in 5 or 6 years is a virtual reality room. Most people are familiar with the exploding world of e-gaming, but are likely to visualize one or two players seated and staring at a large screen with a controller in their hands. That approach to gaming is going to be quickly replaced by a much more immersive and engaging virtual reality form of gaming where the user wears a headset that controls what they see and hear, and sensors track all of their movements including hand motions, head orientation and body movements. Full featured systems are already available – such as the Valve Index from Steam or the Vive Pro from HTC – but they are expensive and time consuming to configure. Given the rate at which the technology is changing, those limitations won’t exist much longer as the boundaries for hardware, software and virtual content continue to expand.
Back in 2006, the Nintendo Wii broke new ground in the gaming world with hand-held wireless controllers that you could swing like a tennis racket or baseball bat. Playing tennis against the Wii was fun but now imagine standing on Centre Court at Wimbledon, surrounded by cheering fans and facing Roger Federer’s serve. To make it as real as possible, you will need a room (at least 6-feet by 6-feet, but preferably 15 x 15) so that you can actually shift your stance and swing a “racket” in a way that controls speed, trajectory and spin. As fun as it might be to play a tennis pro, you might have a more competitive game if you played your neighbor down the street (in their own virtual reality room) or a player across the globe that you meet online. The point is that virtual reality will take gaming to an entirely new level – a level so compelling that people will gladly devote an entire room (and probably thousands of dollars) to make it happen.
Now imagine playing golf at Pebble Beach or the Augusta Country Club and swinging a golf “club” that is so realistic that you not only see the result but you feel the impact with your hands. Golf simulators exist now, of course, but they track primarily the path of the club, and the spin, speed and trajectory of the ball. Virtual reality golf will use far more sensors to give a much more realistic experience, including the ability to putt as if you were actually on the green (and they will do it without needing an actual golf ball to go flying around your house). Or imagine riding an exercise bike that is articulated to simulate going up and down hills and leaning side to side through turns. With a virtual reality system, instead of simply watching your Peleton instructor, you could be riding through the mountains with her (and your classmates) on the Tour de France. Virtual reality is poised to replace both old style “rec rooms'' as well as exercise rooms and home theater setups with a much more engaging alternative.
Impact on Cities
Residential neighborhoods in many cities are already changing. Several places have revised zoning regulations so that single-family neighborhoods need no longer be exclusively single-family – duplexes and triplexes are now allowed to be mixed in without special approval being required. Accessory dwelling units (backyard granny flats) and mixed use districts are also becoming more popular. So the addition of a wider variety of work options or community solar projects may not be a significant change in some communities.
Still, these changes are likely to be controversial in the majority of midwestern cities which means that planners need to start having conversations with community groups about the perceived advantages and disadvantages. Following those conversations, home occupation requirements will need to be adjusted and code enforcement procedures modified. The problem is that home-based businesses are likely to start sprouting up in residential neighborhoods whether the city is ready with appropriate regulations or not. This is what happened with businesses like Airbnb several years ago – dwellings were offered for short-term rental before cities had even considered how to regulate them, let alone had actual regulations in place.
The other major change that I think will follow from the trends discussed in this post (and previous posts) is a change in the way that housing is built, financed and owned. In my opinion, fee simple ownership of a site-built house financed through a traditional mortgage is destined to decline in popularity for a variety of reasons. The biggest, of course, is construction cost. The cost to build traditional housing has gone through the roof (pun intended). Although lumber prices are likely to decline at some point and rising interest rates are likely to pop some of the “housing bubble” price inflation, I think the long-term trend is likely to continue upward.
At some point, factory production of modular housing is going to have to play a larger role in residential construction. There are a variety of ways this could play out so I’m not going to make a precise prediction, but the inefficiencies of custom designed, site built housing are ripe for replacement with standardized components and automated production. In the past, progress has been held back by building codes and inspection practices that favored site built housing, and by the public perception of modular housing as being cheap and insubstantial. Those things need to change.
I also think that generational changes added to the cost issue are going to foster new forms of home ownership. In the fourth quarter of 2021, roughly 25 percent of the homes purchased by professional investors were newly constructed residences. That number is up from less than 5 percent just two years before. Builders are constructing entire subdivisions with the intent to rent rather than sell. [4] This enables young families to get into a nice residential unit without having to come up with a large down payment. It also relieves them from many of the routine maintenance responsibilities – something which, at least anecdotally, they seem less inclined to embrace than prior generations. The downside, of course, is that families have no control over rising rents and they accumulate no wealth in the form of home equity.
I think that some type of middle ground in the development/ownership/financing model may emerge in the next few years – something in between renting and the current ownership models of fee simple or condominiums. What I am envisioning is a residential development with a mix of unit types and a developer/investor that retains a long-term ownership interest. Units would be “sold” to new residents for a modest down payment (perhaps one or two percent of the unit cost) and the resident would make fixed monthly payments that would cover interest, principle and the cost of exterior maintenance and any shared amenity package. The developer would retain all equity in the unit except as it is purchased by the monthly payments, and would split any appreciation in the unit value with the resident at the time of any future sale.
The advantages for the resident/buyer are the opportunity to build equity (particularly in markets with housing appreciation), the ability to avoid the large down payment and rigorous credit checks of a mortgage, the guarantee of a fixed monthly cost (except perhaps for maintenance costs), and the ability to do interior upgrades and modifications at their discretion. The advantages for the developer/investor are a resident population that is motivated to maintain and improve the property, a retention of any tax benefits, recurring capital infusions from the down payments made whenever a unit is sold to a new resident, and the potential for asset appreciation over time.
Would something like this ever catch on? I don’t know, but I think there is room for innovation with new generations of home buyers that are feeling squeezed economically and are not as enamored with the burdens of more traditional home ownership formats.
Thoughts? As always, share your thoughts and ideas by leaving a comment below or sending me an email at doug@midwesturbanism.com. Want to be notified whenever I add a new posting? Send me an email with your name and email address.
Notes:
American Council for an Energy Efficient Economy; “How Much Does Energy Efficiency Cost?”; https://www.aceee.org/sites/default/files/cost-of-ee.pdf
Megan Wollerton; “Should you invest in solar panels in 2022? It’s complicated”; January 2022; CNet; https://www.cnet.com/home/energy-and-utilities/should-you-invest-in-solar-panels-in-2022-its-complicated/
Patricia Price, Alexandra Von Meier; “The Technologies That Could Make All the Difference”; April 26, 2022; The Wall Street Journal.
Will Parker; “Home Builders Find Refuge in Investors”; April 13, 2022; The Wall Street Journal.
