december 4, 2009

Neighborhood and Community Design Moves Toward Accessibility, Simplicity
Housing downturn puts premium on infill and higher-density locations

by Kermit Baker, PhD, Hon. AIA
AIA Chief Economist

Summary: The continued weakness in the residential market is changing how communities and neighborhoods are being designed. There is greater emphasis at present on integrating homes with activities such as public transportation and commercial and recreational uses. This in turn has generated greater density in developments, with infill locations viewed as popular according to results from the AIA Home Design Trends Survey for the third quarter of 2009.

Home exteriors are generally simpler, given the attention to affordability in this economic environment. They increasingly emphasize low maintenance, durability, and sustainability while, given the denser locations, porches and other features that encourage neighborhood interaction also are increasing in popularity.

Business conditions for residential architects remain weak. In the third quarter, billings on existing projects as well as inquiries for new projects both stalled at second quarter levels, whereas in previous quarters these indicators had shown signs of improvement. Residential architects in the Northeast and West are reporting somewhat more encouraging conditions than are those in other regions. Affordable homes for first-time buyers—the first sector to head down when the housing recession began—appear to be poised for a recovery, helped in large part by the federal tax credit for first-time homebuyers. Remodeling activity was reported to strengthen during the quarter.

Neighborhood design trends reflect greater integration into the community
The national housing downturn has produced unusually high inventories of unsold homes in urban fringe locations. These were the locations where large enough parcels of land could be assembled to generate the volume of construction required during the housing boom earlier this decade. However, when the housing market weakened, large inventories of unsold homes remained on the market in these locations.

Rising home energy costs prior to this downturn have helped to generate interest in smaller, more energy efficient homes in locations that were accessible to transportation, commercial activities, and jobs. This trend has generated demand for homes in locations closer to urban centers. As a result, community and neighborhood design priorities have been shifting. Infill development, with smaller parcels in more developed areas, has become very attractive according to residential architects that participate in this quarterly survey. These infill sites typically have higher densities than exurban locations and generally are more accessible to public transportation opportunities and may be part of mixed-use projects (e.g. residential/retail or residential/recreational) that integrate a wider variety of activities.

Given the growing interest for greater densities in housing options located in infill locations, emerging home styles promote greater neighborhood interaction. Greater use of front and side porches is mentioned as a trend growing in popularity by a majority of residential architects. Single-story homes also are becoming more popular, reflecting lower construction costs in most areas as well as the growing trend toward accessibility through the home for an aging population. A growing share of residential architects also report simpler detailing on home exteriors, again reflecting the need to keep home designs affordable.

Even with the focus on housing affordability during this downturn, residential architects report significant interest in low-maintenance and green products for home exteriors. Three-quarters of respondents reported growing interest in low-maintenance exterior materials (e.g., fiber-cement board and stone) while a majority indicated that consumer interest in sustainable roofing materials was increasing. Two specific green exterior products that hadn’t been included in previous surveys—tubular skylights and green roofs—also were seen by a sizeable share of residential architects as increasing in popularity, although apparently off of a fairly small base of consumers that have undertaken these projects to date.

Business conditions remain weak
In spite of some emerging signs of improvement in the broader residential markets, business conditions remain very weak for residential architects. The index for billings at these firms rose sharply from 20 in the fourth quarter of 2008 to 38 in the second quarter of 2009. However, the third quarter figure showed no improvement, and a score of 38 on this index indicates that many more firms are reporting declining billings than are reporting increases in business activity.

Inquiries for new projects are showing a similar pattern, although the index scores are higher. Inquiries also have climbed dramatically since a low in the fourth quarter of 2008 but also leveled off with the third quarter reading with an index score of 47. Inquiries therefore are seeing much slower levels of declines than are billings, but have not yet recovered from their recessionary levels.

Evidence of continued weak conditions in the profession can be seen in the levels of backlogs at these firms. Backlogs—the amount of work currently in-house compared to the amount needed to keep staff fully employed—have been steadily declining. They reached a low of 2.8 months in the first quarter of this year and have barely budged from this level since.

Regional billings activity also has been moving in the right direction, but firms in all regions of the country are still reporting declines in revenue levels. The highest index scores are for firms in the Northeast and Midwest, while the largest gains in index scores are at firms in the South and West as the housing market begins to recover in these Sunbelt locations. Still, the third quarter figures don’t indicate an imminent recovery for firms in any parts of the country.

Recovery beginning at the bottom of the housing market
Since residential architects are involved in a broad range of home design activities, they are in a unique position to compare the health of different sectors of the housing market. A year ago, they indicated that the affordable market for first-time buyers and the trade-up market for households moving to mid-level homes were among the weakest sectors in the industry. However, falling house prices over the past year, mortgage rates that have remained favorable, and the federal government’s tax credit for first-time homebuyers have all helped shore up the lower end of the housing market. Currently, these two sectors look to be the closest to recovery.

The weakest sector at present is the second and vacation home market, which was also the weakest a year ago. Many households looked to second and vacation homes as investments, hoping to realize some appreciation in these properties. With the decline in house prices nationally, these properties are much less attractive at present. Home improvement activity has remained much more stable during this downturn, and many residential architects indicate that kitchen and bath remodeling, as well as additions and alterations to existing homes, have increased over the past year. As this housing recovery continues to unfold, we can expect to see the strength in improvements to existing homes as well as in lower-priced homes.

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