U.S. Housing Market at Inflection Point: The “Old Normal” Will Not Be Part of Recovery, Says New Research From the Urban Land Institute

Report Cites Trends in Demographics, Consumer Behavior as Drivers of New Housing Markets

Palm Coast, FL – January 29, 2010

WASHINGTON (January 27, 2010) – As the U.S. economy recovers, emerging trends in demographics and consumer behavior will become major drivers of new housing opportunities, resulting in a residential market vastly different from the one that existed prior to the recession, according to Housing in America: The Next Decade, a new research paper authored by John K. McIlwain, senior resident fellow, Urban Land Institute/J. Ronald Terwilliger Chair for Housing.

In a presentation of the research to Urban Land Institute (ULI) trustees during the Institute’s Midwinter Meeting in Washington, McIlwain discussed the implications of the rising numbers of foreclosures, re-establishing a private-market residential finance system, as well as shifts in housing demand triggered by baby boomers, their children, and by immigrant households. “The old ‘normal’ will not return,” McIlwain predicted. “Over time, a new mode of metropolitan development will emerge, presenting opportunities and stiff challenges. Those who fail to understand these new trends will find themselves building what is no longer in demand.”

Despite the housing stabilization that has begun in the nation’s strongest employment markets, overall home prices will likely decline an additional 10 percent this year, contributing to what is already an unprecedented number of foreclosures and “underwater” mortgages (loan amounts that are higher than the current value of the homes), McIlwain said. The growing number of consumers who are choosing to walk away from those mortgages suggests a fundamental change from the long-held notion of homeownership as the ultimate American Dream, he explained. This disillusionment over homeownership as a way to build wealth could persist for decades to come, as those entering the housing market will be more apt to rent longer, and to place more emphasis on buying for shelter rather than investment purposes.

Two key predictions from Housing in America for the decade ahead: home appreciation will slow considerably, to about 1 percent to 2 percent annually; and the current U.S. homeownership rate, now at 67 percent (a decline from the record high of 69 percent at the height of the housing boom) will fall further, to about 62 percent.

According to McIlwain, the lasting stability of the U.S. housing market depends on how, and when, the private home mortgage finance system is revived and how such a system might be structured. The federal government now supplies virtually all new mortgage funds through mortgage purchases or securitization.  Reducing this massive support, he said, will entail revamping or replacing mortgage suppliers Fannie Mae and Freddie Mac, and tightening risk requirements for mortgage issuers to restore investor confidence in mortgage-backed securities.

“Re-establishing a robust private mortgage market will require both strong market fundamentals and a reformed mortgage securitization structure that eliminates past abuses,” McIlwain said.

Such reform will influence the flow of capital, affecting the volume of debt, its cost and to whom it will be available, he noted. While reform efforts are still sketchy, the end result “will have a fundamental impact on housing markets for years to come.”  

The report cites four major U.S. demographic waves to watch in the new decade:

  • Aging baby boomers (55 to 64 years old) – Although they are nearing retirement age, many will keep working out of necessity or by choice. Some will be forced to stay in their suburban homes until values recover. Those who are able to move will not choose traditional retirement locations or senior housing, opting instead for more mixed-age living environments that cater to their active lifestyles. Suburban town centers with a walkable urban “feel” will appeal to this group.   
  •  Younger baby boomers (46 to 54 years old), now in or entering their prime earning years – This group will also face a tough time selling suburban homes, hampering the ability of these boomers to move. Because the recession has left many younger boomers with flat incomes and less home equity, their ability to purchase second homes will be greatly diminished, curbing prospects in general for the second home market. However, like their older counterparts, they will be drawn to more connected, compactly designed communities when they are able to switch houses. 
  • Generation Y – This tech-savvy generation has a population of about 86 million, more than the baby boomers. Gen Yers place high value on community; on places (either virtual or actual) to gather and share information, ideas and opinions. As they enter the housing market, they will be far less interested in homeownership than their parents were when they were young adults. (The recession, said McIlwain, has “tempered the interest of Gen Yers in buying their own homes and they will be renters by necessity or choice for years ahead.”) Despite having small incomes, Gen Y will gravitate toward walkable, close-in communities, choosing isolated housing on outer edges only as a last resort because it is the most affordable. Green, “net zero” homes powered exclusively by alternative energy will have strong appeal to this group. 
  • Immigrants – Already 40 million strong, the total population of legal and illegal immigrants in the U.S. has an even greater impact when the children and grandchildren are included as a factor. The tendency of immigrants to cluster, and to live in multi-generational households, suggests that they would prefer larger homes if they could afford them and if the homes were in neighborhoods with a strong sense of community.
All of these groups have some characteristics that reflect a desire to live in more pedestrian-friendly, transit-oriented, mixed-use environments that de-emphasize auto dependency, whether the location is urban or suburban, McIlwain noted. Among the majors factors driving urbanization: 1) growth of two-person households and single households without children (among both baby boomers and Generation Y); 2) a halt to baby boomer migration to the suburbs; 3) the likelihood of Generation Y to rent rather than own; and 4) public policies encouraging compact development.

Economic and land constraints make it impossible for urban infill development to accommodate all the housing demand represented by all the demographic groups, McIlwain said. As a result, suburban development “must adapt or it will be obsolete,” he concluded. “The suburban century is over. This is the urban century.” 

Source: Urban Land Institute (ULI)
For more information, contact: Trish Riggs at 202-624-7086; priggs@uli.org

Toby’s Commentary:  This report is good news for our area. Beach access, parks, and trails will all be important to future buyers. So will mixed-use pedestrian friendly developments such as Town Center.

2 replies
  1. George Meegan
    George Meegan says:

    The jobs are key to housing going up

    You can’t do much with little income, but maybe rent a small appartment, or as many are doing in Flagler county, renting rooms. For about $400 a month everything included you get a room. Same thing was done during the great Depression of the 1930’s. Some of the roomers were Hippy roomers of the 1960’s and feel right at home with others. Many "single" family homes are now rooming houses, with multiple vehicles in the driveways. The next step if you can’t pay for a room is the street. That is a sad reality for many all over the country. The federal Government finaly realized that and now is moving fast for jobs. Too bad they didn’t just give the bailout money to the public to buy vehicles, instead of giving it to GM and Crysler. We probably will see another drop in real estate prices before the jobs show up. Many are buying GM and Ford products and Toyota and Honda are loosing customers and closing US production. Buying American made products is more important now than ever. Helping families is needed from all that can send in some cash to the many needing groups that help the hungry. These are the "tough times" brought on by years of misguided Governmental programs shipping jobs out through NAFTA and trying to make more money by building products out of the USA. This is the Real Estate "lead baloon", that will sink even farther if we don’t take the weight off.

  2. George Edward Chuddy
    George Edward Chuddy says:

    It will be interesting to see how this affects Pal

    United States of America
    Federal Trade Commission
    Washington, D.C.
    Date: September 20, 1991/October 16, 1991
    FROM Joseph J. Koman, Jr. Attorney
    Ronald D. Levis, Investigator
    Division of Enforcement/BCP
    Subject: Show Cause Order
    International Telephone and Telegraph, ITT, ITT Community Development Corporation ICDC and Palm Coast, Inc., Docket No C-2854
    To : Commission
    That the Commission issue a show cause order as to why the existing fifteen year moratorium on sale of registered residential lots at Palm Coast should not be extended for an additional five years. Note: The extension must be ordered not late than the expiration of the fifteen year period, which expires on December 27, 1991

    Nature of Case
    International Telephone and Telegraph Corporation ( ITT) , its land sales subsidiary, ITT Community Development Corporation ( ICDC), and ICDC subsidiary Palm Coast, Inc., 1 . were charges with misrepresenting ITT’s obligations and responsibilities of ICDC and Palm Coast, unfairly and deceptively selling land by misrepresenting the investment values of Palm Coast lots, misrepresenting the types of amenities and facilities available at Palm Coast and failing to provide cancellation and refund rights and failing to disclose other pertinent information.

    1 ITT is one of the major industrial corporations in the United States. The 1991 Standard & Poors Register lists ITT’s revenue as $ 20.05 billion with 119,000 employees. ICDC is a land sales and development firm engaged in selling and developing Palm Coast, a land development in northeast Florida, and also some surrounding areas. Palm Coast is located in Flagler County, between Daytona Beach and St. Augustine, Florida. Attached is a map which shows the various communities that comprise Palm Coast. On the reverse side is an aerial photograph of Palm Coast that clearly shows where growth and development have occurred during the past fifteen years.


    A consent order was issued in this matter on December 10, 1976. The initial compliance report of February 28, 1977 a spot check investigation report of December 18, 1978, a compliance investigation report of April 16, 1981, and the final compliance investigation report of October 6, 1983, were accepted by the Commission. The Atlanta Regional Office (ARO) was responsible for this matter until December 1989, whereupon the Enforcement Division took responsibility for future compliance activity.

    Scope of the order
    The major purpose of the order is to prevent misrepresentations and to require disclosures concerning: (1) the extent of Palm Coast’s development, (2) ITT’s financial responsibilities for the development, (3) the investment potential of Palm Coast lots, (4) total lot costs, (5) the current extent of lot use and the timetable for development, (6) the proximity of Palm Coast to major roads, cities, and necessary facilities and amenities, (7) number and size of facilities, amenities, and residents, and (8) notices of cancellation.

    A second purpose of the order was to make Palm Coast a self-sufficient community with the necessary amenities for year-round living. To assist in this goal, order paragraphs required certain improvements to be developed and constructed in Palm Coast. These included:
    (1) shopping center (2) office building, (3) commercial , manufacturing, and research park, (4) corporate headquarters, (5) I-95 interchange, (6) St. Joe Road improvement. All of these improvements were developed and constructed within the time limitations imposed by the order.

    By terms of the order, respondents are also limited in the size of their development for at least 15 years to 42,000 acres and a maximum of 48,000 registered residential lots. 2 According to three consulting firms retained by the ARO, restricting the size of the community increased the chances for its viability. In its pre-order memoranda the ARO staff explained to the Commission that the 15 year restriction on expansion was probably the most significant order accomplishment. By reducing the
    2 …for a period of fifteen (15) years after the service upon respondents of this order,…respondents shall limit and restrict the development presently known as Palm Coast and consisting of approximately 93,000 acres, to a maximum of approximately 48,000 registered lots in a maximum of 42,000 acres,… and, accordingly, respondents shall neither register any lots nor sell any registered lots in the balance of such approximately 93,000 acres.

    acreage 55% , the Palm Coast community takes on a manageable size, and ICDC must concentrate its development efforts on a smaller parcel of land. With a limited number of lots to sell, the provision alters the business of ICDC from a mere subdivider to a community builder. This provision, as well as the one providing for the building of a basic infrastructure, were designed to stimulate the development and population growth of Palm Coast and to produce a fully-planned and self-contained thriving community. The order also required respondents to submit a report 13 years after date of service. If housing units built or under construction do not equal 50% of the deeded lots, the Commission may extend the limit on the size of development for an additional five years.

    Major Impact

    Unlike many of the other land sales orders in which the principle relief for past customers has been redress, 3 the thrust of this order was to make Palm Coast a viable community for past and future purchasers. By requiring ICDC to make both tangible improvements in the subdivision and limit the area of development , the Commission set up a mechanism to achieve these goals and contributed to the growth of Palm Coast. First, ICDC’s initial compliance with the provisions requiring certain improvements to be developed and constructed played a role in respondents’ determination to stay with the subdivision even after it fulfilled these obligations within the first six years. Secondly, the moratorium on lot sales meant that if ICDC was going to stay with this subdivision, it would have to develop (at least to a certain extent ) those lands to which the Commission was giving it access. Without the moratorium, ICDC could literally have sold thousands of lots outside of the 42,000 acres, which would have given minimal or no benefit to the original Palm Coast purchasers.

    After making the commitment to stay with the subdivision, ICDC in 1983 elected to turn its primary attention to the area east of Palm Coast on the Intracoastal Waterway. Its creation of an upscale community generated interest in Palm Coast’s core and canal areas, thereby affording renewed interest in the subdivision as an investment or place to live. As property
    3. although a redress type of order would have produced a percentage return of purchase price for past customers, the end result would most likely have been a total abandonment of the subdivision by the developer as occurred in the Horizon subdivisions. These subdivisions have had minimal growth during the same time frame in which Palm Coast has expanded considerably. Most of the land cases were brought at the same time, and the other orders have achieved nowhere near the growth experienced in Palm Coast.
    values in these two areas have increased, lower-priced lots in outlying areas have become more attractive and growth has moved north and south from the core area. Furthermore, since ICDC is interested in maximizing profits on its capital investment in the upscale area, they have encouraged housing construction. And with housing and an increase in population, economic benefits are felt throughout Palm Coast. The adage that people and orderly growth emanating from a focal point will eventually lead to the build-out of a subdivision has taken hold in Palm Coast. in no small measure, the Commission’s order has been the catalyst in the forward movement of Palm Coast.

    December 1, 1989 Compliance Report.
    As required by the order, ICDC filed its December 1, 1989, compliance report in a timely fashion. The order provided that the written report be filed 720 days prior to the expiration of the fifteen (15) year moratorium period. The filed report described the extent of the development at Palm Coast, including the number of dwelling units, recreational facilities and public and commercial services ( Compliance Report Materials File I, December 1, 1989 Report).

    The December 1, 1989, report disclosed that at the time there were 7,552 dwelling units ( 6,784 single family and 768 multifamily) at Palm Coast and a population of approximately 15,000 ( 60 % of Flagler County’s total population ). Richard Braunstein, Assistant General Counsel for ICDC, orally reported that at the time of December 1, 1989, report, there were approximately 34,513 deeded lots. Thus, the report indicated that the number of dwelling units located or under construction at Palm Coast after the expiration of the fifteen year period was not expected to be equal to at least 50% of the number of lots at Palm Coast then authorized for residential use as to which deeds are at that time held by purchasers or their assigns. The order provision provides that if the 50% figure is not achieved, the Commission may initiate proceedings under Section 3.72 of the Commission’s Rules to extend the fifteen year period for an additional period not to exceed five years. Any such extension must be ordered not later than the expiration of the fifteen year period (December 27, 1991).

    August 2, 1991 Compliance Report

    On August 7, 1991 , staff requested ICDC to provide updated date on both he number of deeded registered lots and dwelling units at Palm Coat. ICDC’s August 27, 1991, compliance report shows the following analysis of ICDC’s deeded registered lots and dwelling units as of November 30, 1989, and July 31, 1991:
    November 30 1989
    Registered lots deeded 33,7000
    Number off dwelling units on registered lots

    single family 6,6000
    multi-family 800
    Total: 7,400

    July 31, 1991
    Registered lots deeded 35, 800
    Number of dwelling units on registered lots

    single family 7,7000
    multi-family 800
    Total: 8,500

    The current data reveals that as of July 31, 1991, less than 24% ( 23.7%) of the deeded lots have dwelling units thereon. This percentage is only slightly higher than the 22% comparison (of dwelling units to registered lots ) which the November 30, 1989 data indicates. It falls far short of the 50% mandate. According to the report, the Palm Coast population now numbers about 18,000.

    Staff’s August 1991 on-site inspection of Palm Coast
    The Enforcement staff was contacted by Flagler County Officials, various lot owners and civic associations at Palm Coast, and a number of individual lot purchasers regarding possible commission action about the extension of the moratorium for an additional five years. Therefore, once staff had successfully resolved several other land sales matters on its docket, the staff made itself available to meet with and discuss the applicable order provisions and community development during the week of August 19 through 22, 1991. All of the parties spoken to were in favor of extending the moratorium for another five years. It will undoubtedly take more than the additional five year period to achieve the order’s 50% dwelling units objective; 4 but the consensus is that the Commission’s order is responsible for ICDC’s decision to stick with the subdivision and for the growth that has in fact occurred (24% build out). The additional time period can only lead to an increase in the build out and provide all interested parties the opportunity to insure that the orderly growth and development of Palm Coast will continue.

    4 At a rate of approximately a 2% increase in dwelling units to registered lots over a 1 year , 8 month period of time (i.e., from November 30, 1989 to July 31, 1991, the percentage went from about 22% to 24%) it would take another 21-1/3 years to reach a 50%build out. However, since the time frame November 30, 1989 to July 31, 1991, reflects a period of housing recession, it would be unwise to conclude that it will take that length of time to reach the 50% build out.
    The Flagler County officials are of the opinion that an extension of the moratorium would be in the best interest of the county and its residents. Flagler County plans five (5) years in advance for lands that will be needed over the next five (5) years for schools, parks, administrative buildings, etc. Such planning helps to keep county taxes lower and encourages adopting strong regulatory or zoning rules to scrutinize incoming industry and help protect the environment. Therefore, if ICDC were suddenly to announce a plan to plat, register and marker new residential lots, the county would have to carefully review the corporate plans to ensure that they would not upset the delicate growth and development balance in the county.
    By extending the moratorium, Flagler County authorities will be assured that ICDC will continue to develop existing Palm Coast acreage in the county for at least 5 more years and be intimately involved in the same issues that the county must face, i.e., water and utility management and use of public lands. In essence, the moratorium provides an extension of the continuity of the cooperative business relationship currently existing between the county and ICDC. The staff spoke with ICDC officials on August 27 and 28, 1991. Mr. Braunstein advised that ICDC will not oppose the Commission in extending the moratorium another five years.

    Compliance Investigation

    At the time staff of the Atlanta Regional Office concluded the last compliance investigation, they reported that The Admiral Corporation , a wholly owned subsidiary of ITT was developing property east of the Intracoastal Waterway ( Hammock Dunes, a private community of 2,250 ) , and therefore, they were attempting to verify whether this acreage was part of the 42,000 acres within which ICDC was permitted to register and sell lots in accordance with the Commission’s order. To assist them in making this determination, ARO requested that respondents forward a copy of the application for development approval (ADA) for a development of regional impact (DRI) which Florida statutes required developers to file with State and local authorities. However, pervious to ever receiving the ADA/DRI application, the Commission closed the compliance inquiry with the caveat that ARO monitor the situation as it developed. The Secretary’s letter advised respondents of the Commission’s continued interest in the Admiral Corporation’s development activities.

    After this matter was assigned to the Division of Enforcement, staff reviewed existing files and upon discussing the matter with respondents’ counsel discovered that the previously requested ADA/DRI application had never been forwarded to the ARO. Therefore, we again made the request. Staff will review the ADA/DRI application, as well as the Comprehensive Land Use Plan (CLUP), and existing maps of the area at or prior to the time the order was issued, and conduct discussions with knowledgeable persons to determine whether Hammock Dunes, as well as five or six other developments east of the Intracoastal Waterway, fall within the restricted 42,000 acres. The Company maintains that all of these development are within the permitted acreage. They also maintain that by deplating lots within the original Palm Coast subdivision, they have been able to register lots in Hammock Dunes, etc., and still stay within the order’s proscribed cap of 48,000 registered residential lots. As of this time, the staff has been unable to locate the two maps relied upon to show the areas comprising the 42,000 acres. 5

    With regard to the cap of 48,000 lots, the staff has also discovered that the respondents in recent years have engaged in a substantial buy back program ( approximately 8,000 lots bought back from previous ICDC purchasers ) to replenish its lot inventory for additional lot sales, lot and home packages and sales or exchange programs ( such as the Harbor Club time sharing program in which equity can be applied to a lot and house package)> The manner in which this buy back program affects that cap of 48,000 lots has yet to be determined. It is clear, however, that the purpose of this order provision limiting the number of lot sales was to change the business attitudes of ICDC from a seller of lots to a community developer and builder. At the time of the order 38,000 of the 48,0000 lots had been sold. By 1983, there were only 2,000 lots left in the inventory ( October 6, 1983 report by ARO ) which was in line with the decrease in lots the Commission envisioned. The buy back program, however, has put a new twist on the meaning of previously arrived at numbers.

    Staff has also become aware of some consumer complaints regarding the manner in which lots have been sold to certain ethnic minorities, e.g., Chinese immigrants in New York City. It has been reported that ICDC or its brokers’ representatives have used prohibited misrepresentations ( good investment) to sell lots in Palm Coast.

    Staff has also been advised by a number of Palm Coast residents that respondents have shown an increasing disinterest in furthering the growth of Palm Coast and are attempting, by various means, to extricate themselves from the financial burdens of canal maintenance, road improvements or providing utility hook-ups to existing plant facilities. For example , there are certain sections of Palm Coast in which alternative methods to sewer hook-ups are used. These areas have holding tanks in which the effluent flows and pumping of raw sewage is done on a

    5 Pomeranz Exhibit A was the map used before the order was accepted by the Commission. Lister Physical Exhibit C was the map use in the initial compliance report.
    (Add Page Number 8 Here )
    Page 9
    Despite the assurances of ICDC officials that extending the moratorium for five years will not affect their development plans one way or the other, the Commission’s failure to extend the moratorium might needlessly open a "Pandora’s Box" , which once opened will be difficult to control. The essential element of the order was limiting the development of Palm Coast to 42,000 acres and 48,000 registered lots. These 48,000 registered lots were in a 17,000 acre area, the very area in which the Commission wanted growth to bolster respondent’s claims that Palm coast was a well planned and developed community. By terms of the order , visible fulfillment to these claims would have been dwelling units on 50% of those registered lots which were now deeded. This goal has not been reached. However, housing construction and orderly growth are continuing and with 5 years more of construction, ICDC will at least have come much closer to that 50% level.

    Right now ICDC has two options for spending its resources in Palm Coast: the development of the original 17,000 acres and or the development of its properties east of the Intracoastal Highway. As previously noted, staff is concerned that by developing the latter area, ICDC might have violated the order’s acreage and lot prohibitions. However, regardless of the outcome of this issue, there is no doubt that ICDC is presently concentrating its resources on the development of the up-scale properties east of the Intracoastal and therefore, allotting a disproportionate share of such resources in the 17,000 acres the Commission wanted fully developed. Allowing respondents the option to begin the development or sale of undeveloped or raw land in the substantial remaining acres that they own ( 51,000 acres ) gives ICDC an immediate third option on which to spend its resources. This option is the very one the Commission wanted to foreclose until the original property was developed.

    While ICDC advises that it has no interest in selling this undeveloped land right now, they might feel differently 1, 2, or 3 years down the pike. In the past and even presently, respondents have demonstrated an ability to obtain the necessary permits and approval of the projects by accommodating the concerns of state and local agencies. As the largest taxpayers in Flagler County, ICDC wields tremendous influence, and there are no assurances that political considerations would not be the major factor in providing free rein to develop these areas. There is only one available option, i.e., the Commission’s order, that will first and foremost assure that respondents ‘maintain the status quo" of their current development activities and obligations for a finite period and hopefully, allow the 17,000 acres ( primarily the western parts) to continue to grow and develop at a pace more closely in keeping with the pace envisioned when the order was issued.

    furthermore, by extending the moratorium for another five years staff can continue with its compliance investigation to insure that respondents obligations are fulfilled. If the facts warrant, it would serve as the legal basis for any possible civil penalty, for developing outside the proscribed 42,000 acres or violating the cap of 48,000 registered residential lots.


    Respondents have not met the order’s proscribed target goal of 50% build out of deeded Palm Coast residential lots (only 24% of deeded residential lots have dwelling units constructed thereon since service of the order): and staff’s inquiry does not disclose the existence of any valid reason as to why the moratorium should not be extended for an additional five (5) years. An extension will encourage continued construction of dwelling units within the sections comprising Palm Coast. Moreover, respondents do not oppose the extension of the moratorium for an additional five years.

    Therefore, it is respectfully recommended that the Commission, pursuant to Section 3.72 of the Commission’s Rules of Practice issue the accompanying order to show cause as to why the existing fifteen year limitation on sale of registered lots ( maximum of approximately 48,000 registered lots in a maximum of 42,000 acres ) should not be extended for an additional five year period. While the Commission is not required to publish a Federal Register Notice under this section of the rules, by putting this proposed order in the Federal Register a broader base of possible commentors will be put on notice of the Commission’s proposal. This procedure should provide the Commission with more information on which to make a final determination as to whether to issue the Order. A draft Federal Register Notice is attached to the file.
    Justin Dingfelder
    Assistant Director
    Division of Enforcement/BCP
    William S. Saner
    Associate Director for Enforcement/BCP
    1. Aerial map of Palm Caost
    2. Order to Show Cause
    3. Draft Federal Register Notice

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