By: Alexei Barrionuevo | Curbed.com
Ever since builder Del Webb opened Sun City Arizona’s first five model homes in 1960, retirement has been a big business for real estate developers.
For decades, the number of retirees living in multi-unit housing has been shrinking, according to Trulia. But condo developers haven’t given up. In Florida, they are targeting buyers who can afford large homes—but who are willing to accept much smaller spaces in retirement, provided the location is cool. It’s part of a Baby Boomer downsizing that is becoming a niche industry.
Take the Kolter Group. The Florida developer has been luring boomers to condo units that are considerably smaller than their former homes, in tall towers in Sarasota, St. Petersburg, and north Palm Beach.
“Most of our buyers are used to having 3,000-to-5,000-square-foot homes,” said Bob Vail, president of Kolter Urban, an affiliate of Kolter Group. “We are trying to cut them in half.”
While the majority of millennials and GenXers dream of living in bigger homes (unless they want to squeeze into micro units of 350 square feet or less), the 55-and-over-crowd is divided these days between those wanting more space and those wanting to downsize, studies show.
Baby boomers are just as likely to buy a bigger home, and take out a mortgage in retirement to do so, as they are to downsize to a condo in Florida.
Questions about when and where boomers will retire—and what they will choose to buy—are on the minds of economists trying to predict what will happen to housing markets. Boomers are the second-largest group of homebuyers (31 percent) after millennials (35 percent). More than half the homes owned and occupied by boomers (53 percent) are between 1,400 and 2,600 square feet, with 12.5 percent measuring 2,600 square feet or more, according to Trulia.
The questions come as low inventory is stalling home buying across the country. A new Trulia report out this week contends that America has a housing shortage. The number of starter homes on the market has dropped by 43.6 percent since 2012, while the number of trade-up homes has fallen by 41 percent, Trulia said.
At the same time, the median prices of so-called premium homes have distanced themselves further from middle-tier homes, the report shows, and now stand at $542,805 versus $267,845 for trade-up residences.
All this has potential ramifications for boomers who are considering moving into a bigger and more expensive home in retirement.
“The more that price gap increases, the more difficult it will be for an existing trade-up home owner to then move into a premium home,” said Ralph McLaughlin, the chief economist for Trulia. “And if that can’t happen, then it may be difficult for boomers to find buyers for their homes.”
Thousands of cars lined Grand Avenue in Sun City on that New Year’s Day 56 years ago. Within a few weeks, more than 100,000 visitors had come to see what the nation’s first planned community for people 55 and over was offering. For Webb, who had built the Beverly Hilton Hotel in Beverly Hills and the Flamingo in Las Vegas, it was the biggest gamble of his career. The overnight success of Sun City ultimately landed him on the cover of Time magazine as the Man of the Year.
Housing experts predicted Sun City would fail. “Seniors didn’t leave their family back in 1960,” Bill Pearson, the past president of the Del Webb Sun Cities Museum, told CBS News. “You just didn’t pull up roots to move away from the family unit.”
But leave they did, and oftentimes for smaller homes than they had before. The original Sun City homes were one-story bungalows of 860 square feet that started at $8,500. Refrigerated air conditioning, a luxury in those days, fetched another $600.
Today the place is still going strong, with some 40,000 residents living in about 27,000 homes. Residents have tons of activities to choose from, including pickleball, a tennis-like game played with paddles and a whiffle ball.
When they can find buyers for their homes, some retirees seem willing to eschew traditional retirement homes for a taste of the urban lifestyle. And that’s where Kolter is focused.
At three Kolter condo developments—in Sarasota, St. Petersburg, and north Palm Beach—units ranging from 1,800 square feet to 2,400 square feet are priced from about $900,000 to $1.5 million, with penthouses asking more than $3 million.
For many of Kolter’s buyers, at first there is hesitation about living in units so seemingly small. “Our sales manager frequently gets the comment from the husband or the wife that they haven’t lived in something that small since their first house,” Vail said. “But they still buy.”
What attracts them, in large part, are the locations of the developments, which are all in the urban core of the mid-sized cities, in “center ice,” as Vail puts it.
At 41 stories and 450 feet, ONE St. Petersburg will be the tallest building in downtown St. Petersburg, overlooking the bay and the city’s downtown, and feature a 5,000-square-foot fitness complex. Vue Sarasota Bay will feature a dog park atop the parking garage. And The Water Club in north Palm Beach will be three towers of 22 floors each, and have dedicated boat slips and an adjacent full-service marina.
All three buildings, which are in varying stages of construction, will have water views.
The units were designed with efficiency in mind. They are part of a shift away from traditional to more modern design. There is no living room, family room, or dedicated dining room. “None of those things exist anymore,” Vail said. “They chewed up efficiency of square footage.”
Instead, the units all have a central “great room” with very few or no hallways, higher ceilings and floor-to-ceiling windows. There is less compartmentalization of spaces – the units feel bigger than they are on paper, Vail contends.
SB Architects, which is designing the Kolter buildings, has managed to pack a three-bedroom with a den that used to require 3,800 square feet into 2,600 square feet. And the firm has shaved a two-bedroom with a den that was once 2,400 square feet to 1,800 square feet. “Everything has gone on a big diet,” Vail said.
So far, the strategy seems to be working just fine. In Sarasota, the Vue project has eight units left to sell out of its 141, from a three-bedroom for $1.5 million to a four-bedroom penthouse listed for $3.4 million. The Water Club has signed contracts for about 75 percent of its 164 units in the first building, which is scheduled to be completed in the fall. And at ONE St. Petersburg, which broke ground in mid-January, Kolter has contracts for just under half of its units, Vail said.
The boomers moving into Kolter’s buildings are more accepting generally about smaller spaces. They are looking to do more outside their homes, to enjoy downtown and waterfront activities. They don’t want to be gardening and working on the lawns on the weekend. “Their lifestyles are changing at the same time they are changing square footage,” Vail said.
Will boomer downsizing send ripples throughout the rest of the housing market?
“It is going to depend on how quickly boomers decide to pack up and retire,” McLaughlin said. “Are they going to fade away rather than quickly burn out? We’ll have to wait and see.”