In the bustling industry of Real Estate movers, pushers, and hustlers, growth continues to be a definitive influencer of agent culture throughout the nation. Considering the market growth, flexibility of the job, upward mobility potential, commission rates, and barriers to entry, (let’s be honest, it’s not that hard to get a license), it’s no surprise this trend has reared its head. Currently, there are about 2 million active real estate licensees in the country and over 86,000 brokerages. In the last year, the total number of real estate agents is up 10,000 in California alone. According to the Bureau of Labor statistics, the number of agents is projected to increase by at least 3 percent by 2024, so don’t expect this growing storm of agents to subside anytime soon. In an ocean of Realtors, it can be difficult for a drop to stand apart. Between the necessity of differentiation in marketing strategy, and the tech explosion we’ve seen in the last decade, there are many different tools and tactics agents employ in an attempt to do this. Some elect to capture attention with quirky advertisements in their community, some pay for ad space on popular consumer facing real estate platforms, others establish a social media presence, or bombard potential clients with email drip campaigns. While these gimmicks can help, the overflow of agents into these realms has all but saturated the potential to establish a presence in the minds of homebuyers. You can always go with the time-tested and proven again tactic of immersing yourself with basic knowledge of your market, but with so many agents, you’re unlikely to be the only one who knows it all. A better tactic might be to educate yourself of niche knowledge in the industry, something other realtors would be unlikely to know. So, what does that entail? What eclectic knowledge does a realtor need to possess to stand out from an expanding mob of lead-hungry cohorts and adversaries, savagely clawing for renown? Unfortunately, there’s no simple answer, but when a buyer is trying to decide which between you and ten other agents to enter into contract with, any slice of esoteric info you provide could be their determinant. Knowledge of a potential obscure trend in certain communities might pique your clients’ interest, get them talking to their connections, and land you more business in both the short and the long term. In this respect, the answer to growing industry, greater competition, and bigger challenges, is to think small. Micro Homes are coming, and they’re going to influence the real estate industry in a big way.
Micro Homes have surged in Japan due to homeowner preferences, affordability, and the exponentially increasing population rates, yet stagnant development space.
While a demonstration of statistical trends can be very telling, they can often be results of cherry-picked data points, and intentionally void of contrary information, and are therefore, very speculative proposals at best. Even an appropriate analytical approach to any study is only good for predicting close outcomes, and is rarely a strong indicator of unequivocal truth. As the unattributed saying goes, “you can’t argue with results.” This is why rather than analyze current housing trends and preferences in markets throughout the nation where you might expect Micro Homes to sprout, a better gauge of the impending proliferation of Micro Homes is to analyze markets where they already have begun to flourish, deduce why, then discover which markets are currently demonstrating similarly inducing forces. With that in mind, there’s no better market to discuss with regard to the abundance of Micro Homes than those found in Japan. Even since the early 2010’s, Micro Homes have been providing alternative living situations to Japanese citizens who wish to procure their own home, but also enjoy the thrill of city living. The necessity for their development came with an increasing interest of citizens to live in central Tokyo, which, unsurprisingly, is an extremely densely populated region. Shigeru Kimura, an independent real estate agent who specializes in Micro Homes, claims this is largely due to an increase in the demand for close vicinity of all commodities for living. It’s difficult, if not impossible, to live in a suburban area, yet still walk to grocery stores and clothing outlets. Walkability is unquestionably a driving force behind demand to live in cities regardless of market. However, this force is often quelled by the affordability of land and homes in cities. Land in Tokyo cost an average of $1,000 per square foot in 2015, up 5.8% from the previous year, according to the Tochidai real estate data website. Additionally, inheritance tax levied on land in Japan means sites are often subdivided as they are passed on, resulting in plots getting smaller and smaller. Micro Homes, were the simple, yet eloquent solution to living on plots that were often reduced to the size of a parking spot. This became the far preferable option for the young citizens inheriting the land to living in a spacious home with their parents in the suburbs. Since they are so cheap to build, (only $23,000 on average), Micro Homes not only met the preferences of this new generation of home owner, but conformed to their spending capacity as well.
Are these influencing factors applicable in US cities as well?
US cities are seeing an increase in population, yet maintain stagnant development space, (duh).
The most identifiable characteristic we share with Japan of the above listed is increasing population rates, yet stagnant development space. US has a total population of 10 million more than we did just 5 years ago, roughly a 3% increase. The population rates are even more dramatic in US cities, with the most extreme cases showing an 8% increase every single year, demonstrating not only an increasing population, but an increasing demand to live in cities. Predictably, these coupled catalysts have led to huge upticks in the real estate markets, particularly in US cities, inevitably leading into yet another shared characteristic between us and the once incipient development of Micro Homes in Japan: affordability.
Affordability is increasingly becoming a driving factor in US home purchases.
In order to adequately convey how impactful affordability of housing will be on the market in the near future, it’s important to cite the shift in demographics of US homebuyers, because what kind of blog post would this be if we failed to mention millennials? Millennials already make up the lion’s share of home purchases, representing 35% of all homes bought last year, and that hasn’t even begun to scratch the surface of their buying power. In the next five years, 66.1% of millennials expect to make their first home purchase. Combine expectations like that with the fact that 52% of millennials have less than $1000 in their bank account, and affordability skyrockets to the top of the priority list for millennial homebuyers. Many millennials have consequently resigned to buy in the suburbs. 67% of millennial homebuyers in fact have settled for suburbs, compared with only 13% that have purchased housing in an urban setting. This has led many realtors to conclude that millennials prefer suburban living, when in reality, their preferences lie with close-knit community and walkability.
US home-owner preferences are shifting.
The majority of millennials purchasing in the suburbs is a product of a compromise with affordability, not preference. This is indicated by growing social trends of reduction in luxury and personal ownership, shifts in environmental consciousness, and, probably the most telling, a ULI survey of views on housing, transportation, and community, presented by Stockton Williams, executive director of the ULI Terwilliger Center for Housing. “Millennials expressed a higher level of dissatisfaction with their communities and local housing options than did [people in] other demographics,” explained Williams. “They say that neighborhoods lack convenient outdoor spaces to run, walk, bike, and exercise.” More than 60 percent of millennials, he added, want to live in areas where they can use their cars less. The survey also showed millennials express a lot of interest in low-maintenance materials, open floor plans, and energy efficiency when considering a home purchase, all of which make traditional home purchases a less viable option. Millennial behavior in terms of their tech use and social interaction also strongly suggest Micro Homes are a likely inclination of the future. As personal ownership becomes more and more disintermediated, and community based concepts like car sharing become the norm, there will be less demand for storage, and greater demand for close vicinity to friends and neighbors. Millennials have been much more reluctant to make long term luxury purchases like cars than have generations before them, and this social preference is magnified to even greater extents when we look beyond millennials to the next generation of sooner-than-you-think to be homebuyers: Generation Z, only 60% of whom have drivers’ licenses by the age of 18. Gen Z, defined as they currently exist in the housing market, are tech-savvy, yet risk adverse renters who bring their social personalities home, desiring communal amenities geared toward bringing people together. They prefer living with others to living alone, which is unsurprising considering their constant social immersion with group video chatting apps like Snapchat, Houseparty, or Live.ly. As this generation crawls towards home purchasing power potency, community centric housing and affordability becomes an even greater issue as an inability to purchase highly priced homes will plague an even greater share of the market. And while the issue of affordability amongst younger generations will be the prominent driving force for an increased demand for Micro Homes, the continued social tendencies of close-knit community and constant social immersion will greatly influence their purchase, and eventually push us even beyond Micro Homes to a bold new concept.
Micro Homes: The Gateway Drug to Micro Communities
Despite all evidence that Micro Homes will become highly sought after in the coming years, there is one large barrier to the development of Micro Homes in USA. The Maps Act likely wouldn’t allow them to be built in many instances since they often wouldn’t abide by the principle of conformity, meaning they wouldn’t be allowed simply because they would look too severely out of place amongst other homes and living spaces. And while many potential Micro Home constructions wouldn’t take place independently of surrounding lots and amenities because of this, there is a way young American home-buyers could slip around this formality. We briefly mentioned subdivision of lots in Japan resulting in parking spot sized lots, largely directing Japanese homeowner preference towards developing Micro Homes in these lots. In USA, while the Maps Act would typically prevent lots from being reduced to the size of a parking spot, if it was explicitly stated that the intended use of these plots in addition to adjacent plots was to build Micro Homes, exceptions would be made since one of the primary goals of the Maps Act is to encourage orderly community development by providing for the regulation and control of the design and improvement of the subdivision, with a proper consideration of its relation to adjoining areas. Considering this may very well become a trend in the intended use of land given the cost benefits when comparing micro homes with traditional properties as well as the generational preferences of near future home owners, and since the Maps Act is applicable as lots relate to adjoining properties, this would mean an insurgence of entire Micro Home communities could begin to spring up throughout the nation. In fact, this progression has already begun. Already Micro Communities of 30 or more Micro Homes have materialized in Olympia, Washington, Sonoma, California, and other cities across the nation. So now that you have a firm understanding of why a paradigm shift from traditional housing to Micro Homes and communities is all but imminent, the next time someone asks you about the future of real estate, you’ll be armed to dazzle them with an abstract opinion of a niche trend that will allow you to stand out and leave an impression