Some renters would give up a bedroom in their current place and rent a smaller unit – if it meant they could save more quickly for a down payment on their first home.
Whether to settle for a three-bedroom house instead of four is a choice many buyers have to make, and that will continue in the months ahead – especially if housing costs and mortgage rates remain stubbornly high.
In the new-home sector, many builders are making that choice for them: not just in the number of bedrooms, but also the number of bathrooms, the size of the garage or lot, and anything else where builders can pare costs to make their plans less expensive to build.
Going forward, said Anja Seng, a senior research analyst at John Burns Real Estate Consulting, builders will be facing the same challenges as their customers. Some will charge ahead as planned; some will mothball projects and wait for a better market. But Seng said “the most creative” among them will seize the day by making bold design choices.
Not Just Builders – Renters, Too
Some builders, like the three spotlighted in a recent Burns newsletter, already have. One gave up primary baths, one eliminated private yards and the third took garages off the table. If their success is any measure, other builders may soon follow.
And if other builders need more convincing, they should consider a recent survey by RentCafe, a rental search engine, which found that 1 in 3 renters would gladly give up a bedroom if it helped them save for a house a little more quickly. (Full disclosure: RentCafe is owned by Yardi, which also owns Multi-Housing News, a publication for which I write a monthly column.)
RentCafe asked 3,659 visitors to its website if they would be willing to downsize to better save for a down payment, and 36 percent said they would. The study found that tenants who are willing to compromise on space could save an average of $3,735 per year.
With that kind of savings, the typical renter would have enough for a 10 percent down payment on a starter home in their particular markets in six years and seven months. That’s still a long time, to be sure, but that’s without putting up any other funds – and it’s just the national average. Building a down payment can occur much quicker in some spots.
In Dayton, Ohio, for example, a renter would save enough by renting a smaller place – $3,168 annually – to set aside 10 percent down on a $57,652 starter house in just 21 months. And a renter in Philadelphia would put away enough – $7,416 a year – to build up a 10 percent down payment for a $142,288 house in 22 months.
That renters are willing to make such a sacrifice to fulfill their dreams should embolden builders to do the same. The question every builder has to answer is: What are first-time buyers willing to give up to go from tenants to owners?
Trade-Offs to Snag Buyers
One potential giveaway is a big, lush, expensive primary bathroom with shower and tub, compartmented water closet and dual sinks. That’s what one builder did at the Eagle Ridge development south of Seattle, where two of the five floor plans offered have no primary bath. Instead, the primary and secondary bedrooms shared a bathroom, according to the Burns report.
The target market: renters who were already accustomed to sharing a single bath. The result: The shared bathroom plans sold just as well as the builder’s more conventional layouts.
At the Kissing Tree community south of Austin, Texas, meanwhile, private yards were swapped for a prime location in which the clustered houses overlook a golf course. The houses sold so well, the consulting firm reports, that the builder is opening two new phases.
And at Chatham Park Cottages in suburban Raleigh, North Carolina, 23 of the 30 houses have assigned parking spots instead of garages. Although the builder expected some pushback, Seng reports, the idea was well-received and the company plans to replicate the idea elsewhere. And why not? How many apartments offer tenants assigned spaces, let alone garages?
Extras Aren’t Cheap
Whether other rookie buyers would give up a luxurious bath, a lawn of their own or a garage is hard to say. But those are not the top priorities of the recent and wannabe buyers who are polled every year by the National Association of Home Builders. Almost invariably, the most unwanted features are of little consequence because most builders targeting first-time buyers don’t offer them – elevators, for example, or cork flooring.
More importantly, the 10 most unwanted features are selected from a list of 200. When asked specifically about their desired number of bedrooms, most respondents said that three would do just fine.
Bedrooms aren’t all that expensive to build, save the extra cost to put a roof over them. But full bathrooms are costly: roughly $25,000 each. And with that in mind, most poll respondents said two baths were enough.
Garages aren’t cheap, either: about $27,000 to park one car and $45,000 for two. Knowing the cost, most buyers still said they’d opt for a two-car garage, though 18 percent said a one-car would suffice.
Finally, there’s also a notable shift to completely or partially open floor plans that feature kitchens that open to the living room, dining room or family room. That means fewer walls, which translates into somewhat less cost, at least for the builder.
All of this indicates to me that today’s buyers are more flexible than ever. They realize that something has to give to bring prices down to a level they can afford, and they are willing to make compromises.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org.