Micro-Housing Trends & Forecasts

By: | August 5th, 2016

The vast majority of humans today are migrating to cities where jobs and culture can be found. In the rural and suburban areas left behind, there are lots of opportunities to buy nice houses at reasonable prices. However, the attraction of these areas is wearing off as many people feel isolated and don’t like car-centric living.

At the same time, real estate values in large cities are skyrocketing. Those who like locations with high “walk scores” (www.walkscore.com) that are close to jobs now find these properties are selling at a premium and an offer on a house is often accompanied by a dozen or more offers followed by a round of bidding, increasing the final sales price above the asking price. At the same time, rents are astronomical: a New York studio apartment at just 550 ft.² is $2,300 a month while an average one-bedroom is 750 ft.² and costs $3,000 a month.

Innovative Micro Housing for Big Cities

IndustryTap has covered the conversion of a 200-year-old arcade in Providence, Rhode Island into 48 micro apartments, new micro-housing architecture including portable housing Eco-Capsulesmicro structures placed on rooftops in Manhattan, 3D printed housing, and shipping container homes. All of these structures are relatively small compared to the typical American home, which is about 2,600 square feet.

These problems are becoming so great that organizations such as the Urban Land Institute (ULI) are now leading the charge for better land use policy, the development of best practices to serve community housing needs, fostering collaboration to solve problems of urbanization, promote conservation, increase access to capital and loans, and foster sustainable development. In a ULI report “The Macro View on Micro Units,” the market performance and market acceptance of micro and small living units is assessed. The following is the conclusion of the study:

Micro units have generated considerable interest and some controversy in the real estate
community in the past several years. This research illustrates that the migration toward smaller
average unit size, based on a shift in mix to studio and one-bedroom units, and the number of rental apartment communities offering micro units are a growing trend.

Whether this turns out to be a lasting phenomenon or a passing fad, micro units have renewed
the focus on efficient layouts and innovative design solutions. Many of these smaller units are
designed and configured to feel larger to potential renters than older conventional units by virtue of higher ceiling heights, larger windows, built-in storage, and in some cases, flexible furniture systems.

The evidence from the market indicates that smaller units tend to outperform conventional units;
they tend to have higher occupancy and achieve significant rent premiums.

Still unclear is whether this performance is driven by the relatively limited supply of these smaller units on the market, or whether a sizable, and perhaps untapped, segment of renters is willing to make the tradeoff and pay considerably more per square foot rent in exchange for highly desirable locations, better community amenities, the ability to forgo a roommate—or perhaps some combination of these factors. The consumer research indicates that, from the renter’s perspective, the micro-unit strategy that offers a lower monthly rent “sticker price” compared with conventional units is a compelling proposition.But it is also clear from the research that micro units are not for everyone and that micro units may not be the solution for every location.

The goal of this effort has not been to find conclusive answers to these questions, but rather to shed light on the key issues, challenges, and some of the solutions that market participants have experienced and experimented with to date in dealing with micro units. The real estate industry needs to investigate this issue further and continue to monitor the successes and challenges that this unique rental apartment product presents, including the risk/reward profile and long-term market viability of micro units. We thank those who have participated in this study, and we hope this report provides an objective background for future micro-unit developments as those of us in the industry collectively and individually seek solutions that best suit the markets we serve.

The following video shows Japan’s recent micro apartment boom. According to GlobalRealEstateExperts.com, the trend toward smaller housing is likely to continue, especially for first time home buyers all over the globe.

David Russell Schilling

More articles from Industry Tap...