May 5, 2008
Moving on down | Frank O'Hara of Planning Decisions Inc. on how Maine's aging population is impacting the state's real estate market
By Kerry Elson
Baby boomers are nearing retirement age, and many are looking for new digs. That's been great news for developers of "adult communities" in Maine.
But as the economy slows, those retirees might have less spending power, and developers may have to adjust their expectations, according to Frank O'Hara, a planner and policy advisor at Planning Decisions Inc., based in South Portland.
O'Hara, who works in the firm's Hallowell office, is speaking about Maine's aging population and their real estate needs on May 15 at the Maine Real Estate and Development Association's spring conference. O'Hara is one of six invited to opine on Maine's second-home market, as well as assisted living facilities and other forms of housing for the elderly.
O'Hara's big concern: Boomers' retirement income is down one-third from last year as the stock market has twisted and turned this year. As a result, they may not be able to afford pricey condos on golf courses. And they may not be moving at all ˆ in the poor housing market, it'll be harder to sell off their single-family homes.
But there is hope, says O'Hara. Developers can build smaller homes that still offer amenities like lawn care and other maintenance. Some businesses owners, like John Wasileski of Highland Green in Topsham, will even buy customers' homes so they can move into one of his properties.
O'Hara recently spoke with Mainebiz about opportunities for developers of senior housing in an economic slump. The following is an edited transcript.
Mainebiz: Can you share your thoughts on how Maine's aging population will affect the real estate industry, and perhaps what businesses can do to meet the needs of this population?
Frank O'Hara: I spoke a couple years ago at a MEREDA group and described the baby boomer group as a tsunami coming into the housing market. This generational group has profoundly changed institutions in Maine as it's gotten older, starting with a lot of elementary schools in the 60s and high schools and apartments in the 70s and then single family homes in the 80s. And right now I guess they're going through another life change, going from larger houses, downsizing into retirement-type houses.
So that will be the major source of demand for new housing construction in the next five to 10 years. In other words, the state population isn't changing that much, but if we have 10,000 to 20,000 people a year who are moving from their 50s into their 60s, and moving into these different [types of] housing, then that's going to be the source of new construction demand.
So we've kind of known that, and we have an idea about what kinds of housing they like. What's changed since I spoke a couple years ago is simply the finances of people have changed. Two or three years ago, people were riding high with the stock market and riding high with their home values, so that when it came time to cash in and buy a retirement house they had a lot of assets. So now, that demand is still there. People still want to make this move, but their house value, it's tougher to sell. Their stock values are not quite as high. And then of course, gas, food, living expenses are higher, too, so the budgets are a little tighter.
So it means from a development point of view, the developers still need to pay attention because this is the group that they want to deal with. They have to figure out ways to sharpen the pencil and figure out ways to provide what it is [retirees are] looking for, but within a budget where they're going to be able to afford it and can afford to live there.
So that would mean basically building smaller homes that would be less expensive?
Yeah, I think they would be interested in a couple things. Obviously, easy maintenance is one. And that's the one-floor home and so forth. They're also looking for a lifestyle type of place where they can socialize, see people, go walking, exercise, play golf ˆ if they're going to play golf ˆ go to the movies. So, a place with amenities around them. They like to be near family. And some of them want to be warm, which we can't do much about in Maine.
That's the kind of market. But the trick will be [that] right now, that market is restricted to a pretty small proportion of retirees [who are] selling a good house and with a decent income and with a good portion coming from out of state. Can the kind of things that [developers are] offering be made into a product that more people can afford? That's part of the development industry's challenge.
Do you know of anybody who's made some changes or has embarked on a more affordable kind of home project?
There are different kinds of models around. Down in Greater Portland, there's been something called "houseominiums." They're kind of small, they're less expensive than the Thornton Oaks-type project [in Brunswick] and they're not in a scenic place or anything. But they have a number of these characteristics and they're lower cost than the standard kind of retirement house.
So in other words, it's a one-story house on a small lot, but the project is managed in a way that it's like a condominium ˆ the grass is cut [and] the outside of the house is maintained by the association. But it's not a condominium in the classic sense of everybody living in one [building]. There are some in Scarborough and Gorham.
And obviously, I think there's a potential which hasn't really been tested yet for doing some less expensive in-town housing up here in Augusta or Lewiston or Bangor, some of these communities where the downtown has been quiet, put it that way, for many years. People might be able to get some land and buildings to do some things that would be an attractive place for people to walk around and socialize and do cultural events and so forth.
You were doing some research to prepare for your presentation at the MEREDA spring conference. What kind of things are you looking at?
Well, in this case, I was checking again on projections of households by age, as an example, which is still showing what I had from three years ago, which is that the demand from the 50- to 65-year-old group exceeds every other group. As a matter of fact, for all other households, [there is] actually a little bit of a decline in demand.
So I was checking that, and I was actually checking to see any recent surveys of older people about what their preferences [are] for housing and so forth, finding confidence that they have adequate income for retirement. That's down about a third from last year.
It seems as though the state has tried to market Maine as a good place for retirement. Do you still think people from away are thinking about Maine as a retirement destination?
Yes, I think Maine is in competition with the rest of the country for retirees. And so in a sense, the people in Maine who are retiring are looking at out-of-state sites in comparison to Maine and the people from out-of-state are looking at Maine relative to other places.
But we're in the game. People like Maine. The climate is our biggest issue up here, relative to retirees, but I think small-town living is very attractive to people, the cultural things that go on in Maine are very attractive to people, the artistic kind of tradition. The colleges are a draw, Colby, Bates, Bowdoin, Orono are good things. And Portland, of course ˆ a lot of condos going in there, which is a sign of interest, so I think that Maine is competitive for that kind of housing.
What are some of the challenges facing developers and buyers?
Developers are helping people to sell their former homes. One of the things slowing down this market now is if people can't sell their existing home they're not going to buy [and] move into a new one.
What can be done about that?
I think different developers are trying different appeals in terms of holding houses for people or saying, "We'll buy something at a reduced price from you."
Can you think of any examples of that?
It's somebody that's a client of ours. Highland Green [in Topsham]. [The offer is] on their website if you want to look at it ˆ "Have your house appraised and list it within five percent of the appraised value. If it doesn't sell within a year, [we] will buy it from you. Certain conditions apply." So I don't know what that means.
Right now, the worst thing in the housing market, it's not the lower prices, it's that nobody can sell anything and if you can't sell your last one, you don't move to the new one, so it's sort of slowing the whole process down.
This situation of reduced house values is not going to go away in a year. With a few interruptions, we've had 20 or 25 years of extraordinary growth in home equity values and that may not continue. Probably in the next five years, which is a long time for a developer's point of view, it's unlikely that the home value inflation is going to kick back in again.
So it's a matter of being mindful and presenting more affordable options?
Yes, and being able to figure out how to work with the customer, really. In some ways, new construction can be way more energy efficient, so you have a selling point in that. You can lower operating costs, but you just have to be aware that the equity people will have going into it may not be as great as they would have been. People will be more thrift-minded.
The other thing I would say that relates to this market is that people are looking for different things in housing than they looked at 20 years ago. Twenty years ago, people were into back to the land and "Let's go to the country and let's get an isolated spot." And now I think among young people and among retirees, both are looking for, "Where can I live that's near to services? I don't have to get a car, I don't want to be driving around, I want to have stuff to do at night, I want to go to restaurants or see movies or see plays." So all this is pushing a little shift in the housing market geography in Maine, which is pushing back at the urban areas that for 25 years have not had a lot of interest.
But as the economy slows, those retirees might have less spending power, and developers may have to adjust their expectations, according to Frank O'Hara, a planner and policy advisor at Planning Decisions Inc., based in South Portland.
O'Hara, who works in the firm's Hallowell office, is speaking about Maine's aging population and their real estate needs on May 15 at the Maine Real Estate and Development Association's spring conference. O'Hara is one of six invited to opine on Maine's second-home market, as well as assisted living facilities and other forms of housing for the elderly.
O'Hara's big concern: Boomers' retirement income is down one-third from last year as the stock market has twisted and turned this year. As a result, they may not be able to afford pricey condos on golf courses. And they may not be moving at all ˆ in the poor housing market, it'll be harder to sell off their single-family homes.
But there is hope, says O'Hara. Developers can build smaller homes that still offer amenities like lawn care and other maintenance. Some businesses owners, like John Wasileski of Highland Green in Topsham, will even buy customers' homes so they can move into one of his properties.
O'Hara recently spoke with Mainebiz about opportunities for developers of senior housing in an economic slump. The following is an edited transcript.
Mainebiz: Can you share your thoughts on how Maine's aging population will affect the real estate industry, and perhaps what businesses can do to meet the needs of this population?
Frank O'Hara: I spoke a couple years ago at a MEREDA group and described the baby boomer group as a tsunami coming into the housing market. This generational group has profoundly changed institutions in Maine as it's gotten older, starting with a lot of elementary schools in the 60s and high schools and apartments in the 70s and then single family homes in the 80s. And right now I guess they're going through another life change, going from larger houses, downsizing into retirement-type houses.
So that will be the major source of demand for new housing construction in the next five to 10 years. In other words, the state population isn't changing that much, but if we have 10,000 to 20,000 people a year who are moving from their 50s into their 60s, and moving into these different [types of] housing, then that's going to be the source of new construction demand.
So we've kind of known that, and we have an idea about what kinds of housing they like. What's changed since I spoke a couple years ago is simply the finances of people have changed. Two or three years ago, people were riding high with the stock market and riding high with their home values, so that when it came time to cash in and buy a retirement house they had a lot of assets. So now, that demand is still there. People still want to make this move, but their house value, it's tougher to sell. Their stock values are not quite as high. And then of course, gas, food, living expenses are higher, too, so the budgets are a little tighter.
So it means from a development point of view, the developers still need to pay attention because this is the group that they want to deal with. They have to figure out ways to sharpen the pencil and figure out ways to provide what it is [retirees are] looking for, but within a budget where they're going to be able to afford it and can afford to live there.
So that would mean basically building smaller homes that would be less expensive?
Yeah, I think they would be interested in a couple things. Obviously, easy maintenance is one. And that's the one-floor home and so forth. They're also looking for a lifestyle type of place where they can socialize, see people, go walking, exercise, play golf ˆ if they're going to play golf ˆ go to the movies. So, a place with amenities around them. They like to be near family. And some of them want to be warm, which we can't do much about in Maine.
That's the kind of market. But the trick will be [that] right now, that market is restricted to a pretty small proportion of retirees [who are] selling a good house and with a decent income and with a good portion coming from out of state. Can the kind of things that [developers are] offering be made into a product that more people can afford? That's part of the development industry's challenge.
Do you know of anybody who's made some changes or has embarked on a more affordable kind of home project?
There are different kinds of models around. Down in Greater Portland, there's been something called "houseominiums." They're kind of small, they're less expensive than the Thornton Oaks-type project [in Brunswick] and they're not in a scenic place or anything. But they have a number of these characteristics and they're lower cost than the standard kind of retirement house.
So in other words, it's a one-story house on a small lot, but the project is managed in a way that it's like a condominium ˆ the grass is cut [and] the outside of the house is maintained by the association. But it's not a condominium in the classic sense of everybody living in one [building]. There are some in Scarborough and Gorham.
And obviously, I think there's a potential which hasn't really been tested yet for doing some less expensive in-town housing up here in Augusta or Lewiston or Bangor, some of these communities where the downtown has been quiet, put it that way, for many years. People might be able to get some land and buildings to do some things that would be an attractive place for people to walk around and socialize and do cultural events and so forth.
You were doing some research to prepare for your presentation at the MEREDA spring conference. What kind of things are you looking at?
Well, in this case, I was checking again on projections of households by age, as an example, which is still showing what I had from three years ago, which is that the demand from the 50- to 65-year-old group exceeds every other group. As a matter of fact, for all other households, [there is] actually a little bit of a decline in demand.
So I was checking that, and I was actually checking to see any recent surveys of older people about what their preferences [are] for housing and so forth, finding confidence that they have adequate income for retirement. That's down about a third from last year.
It seems as though the state has tried to market Maine as a good place for retirement. Do you still think people from away are thinking about Maine as a retirement destination?
Yes, I think Maine is in competition with the rest of the country for retirees. And so in a sense, the people in Maine who are retiring are looking at out-of-state sites in comparison to Maine and the people from out-of-state are looking at Maine relative to other places.
But we're in the game. People like Maine. The climate is our biggest issue up here, relative to retirees, but I think small-town living is very attractive to people, the cultural things that go on in Maine are very attractive to people, the artistic kind of tradition. The colleges are a draw, Colby, Bates, Bowdoin, Orono are good things. And Portland, of course ˆ a lot of condos going in there, which is a sign of interest, so I think that Maine is competitive for that kind of housing.
What are some of the challenges facing developers and buyers?
Developers are helping people to sell their former homes. One of the things slowing down this market now is if people can't sell their existing home they're not going to buy [and] move into a new one.
What can be done about that?
I think different developers are trying different appeals in terms of holding houses for people or saying, "We'll buy something at a reduced price from you."
Can you think of any examples of that?
It's somebody that's a client of ours. Highland Green [in Topsham]. [The offer is] on their website if you want to look at it ˆ "Have your house appraised and list it within five percent of the appraised value. If it doesn't sell within a year, [we] will buy it from you. Certain conditions apply." So I don't know what that means.
Right now, the worst thing in the housing market, it's not the lower prices, it's that nobody can sell anything and if you can't sell your last one, you don't move to the new one, so it's sort of slowing the whole process down.
This situation of reduced house values is not going to go away in a year. With a few interruptions, we've had 20 or 25 years of extraordinary growth in home equity values and that may not continue. Probably in the next five years, which is a long time for a developer's point of view, it's unlikely that the home value inflation is going to kick back in again.
So it's a matter of being mindful and presenting more affordable options?
Yes, and being able to figure out how to work with the customer, really. In some ways, new construction can be way more energy efficient, so you have a selling point in that. You can lower operating costs, but you just have to be aware that the equity people will have going into it may not be as great as they would have been. People will be more thrift-minded.
The other thing I would say that relates to this market is that people are looking for different things in housing than they looked at 20 years ago. Twenty years ago, people were into back to the land and "Let's go to the country and let's get an isolated spot." And now I think among young people and among retirees, both are looking for, "Where can I live that's near to services? I don't have to get a car, I don't want to be driving around, I want to have stuff to do at night, I want to go to restaurants or see movies or see plays." So all this is pushing a little shift in the housing market geography in Maine, which is pushing back at the urban areas that for 25 years have not had a lot of interest.
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