25,000 Californians turn 55 every month. With eyes on this big demographic shift, more builders enter the age-qualified 55+ new home market each year. Some are more successful than others.
We’ve analyzed nearly 10,000 homes in age-qualified (AQ) California communities and have visited every active 55+ new home neighborhood in the state. Based on this experience, we’ve learned a lot about what AQ home buyers are looking for, how to properly segment in this market, and how much of a price or pace premium (if any) AQ communities can achieve in comparison to all-ages communities with similar attributes. Some emerging trends are:
- More builders are successfully offering two-story homes in 55+ communities, but the depth of demand for these homes is often limited. Many builders have stumbled by offering too much second-story space or not accounting for the impact that adding a stair system can have on first-floor livability in a small footprint home. Second-floor space should consist of a bonus room or loft, or one bedroom and one bathroom. More than 400 to 500 square feet in most market areas can be too much.
- Most AQ buyers will not use second-floor space as primary living areas, and home prices need to reflect this. Some builders report that on a price-per-square-foot basis second-floor space needs to be priced at about 25% to 30% less than that of first-floor space to achieve typical absorption targets.
- Two-story floor plans are a great way to expand the opportunity for product segmentation in AQ neighborhoods, but most AQ buyers still strongly prefer single-story living. Our latest Consumer Insights survey of new home shoppers shows that about 80% of Southern California shoppers aged 55 years or older are looking for a single-story home, and many are not willing to compromise. Offering all two-story floor plans greatly limits the pool of potential buyers for AQ neighborhoods.
- The long-standing recipe for a successful 55+ floor plan calls for two bedrooms (master bedroom and guest bedroom), two bathrooms, and an office/den for larger homes, with segmentation primarily based on home square footage and lot size. While this still holds true, it makes floor plan segmentation quite challenging in smaller communities with a limited range of lot sizes.
- One of the things we’ve learned from 55+ homeowners is that it is very commonplace for the “guest” bedroom to routinely be used by one of the primary residents to accommodate differences in sleeping schedules, snoring, and so on. Cohabitation with extended family members is also on the rise in AQ communities—especially in high-cost areas. For these reasons, dual master bedroom plans are increasingly popular.
- Builders report that the “sweet spot” for AQ home sizes is between 1,400 and 2,400 square feet.
- Although mixing in two-story homes and dual master floor plans can enhance segmentation, it remains difficult for one master-planned community to support more than three different 55+ product neighborhoods. Communities with four or more simultaneous AQ product can cannibalize each other.
The AQ Premium
- The “AQ premium” is often overstated because other factors that influence values have not been appropriately accounted for. AQ communities typically have more single-story homes and more amenities than all-ages communities. On average, 55+ home buyers spend more on options/upgrades and lot premiums than other buyers. AQ homes may also have different standard specifications, including upgraded universal design features, than all-ages homes.
- Accounting for these factors, we have isolated the price premium attributable solely to age-qualified designation as about 1% to 3% in Southern California today. That said, in some communities with too many cross-competing neighborhoods, the premium for AQ homes has dropped to zero.
- There are some notable outliers. Del Webb is one of the strongest AQ brands in Southern California and outperforms the rest of the market in terms of price and pace. Del Webb Rancho Mirage, which opened in 2018, achieves an AQ premium closer to 5% and captures double the sales volume of comparable communities.
While the age-qualified home market should continue growing, there are some challenges to increasing supply in this segment:
- With a higher proportion of one-story floor plans, it is more difficult to maximize desired densities in comparison to all-ages communities with more two-story floor plans.
- AQ community amenities typically are relatively extensive and should be completed up front, which front-loads costs.
- It is challenging to offer more than three concurrent product lines in any one master-planned community, which increases build-out time frames and spreads the cost of community amenities over fewer lots.
Our experienced consultants are here to help you sort out the idiosyncrasies and market viability of potential age-qualified communities. Please contact us anytime.