CRE N Illinois

Sam Zell: Is the love affair with homeownership coming to an end?

Is the love affair between U.S. consumers and their single-family homes coming to an end? For younger consumers, this seems to be the case. And for Sam Zell, real estate celebrity and chief executive officer of Chicago’s Equity Group Investments, this means one thing: The younger generation of consumers is pretty smart.

Is the love affair between U.S. consumers and their single-family homes coming to an end? For younger consumers, this seems to be the case. And for Sam Zell, real estate celebrity and chief executive officer of Chicago’s Equity Group Investments, this means one thing: The younger generation of consumers is pretty smart.

“There was a time during the housing boom when people got out of college, found a job and then bought a condo the very next day,” Zell said. “I remember thinking, ‘What are these young people doing tying themselves down that way?’ That’s changing now. Young people are realizing that they don’t have to get on that track.”

Zell made his comments during his fireside chat with Debra Cafaro, chief executive officer of Chicago-based seniors housing and healthcare REIT Ventas Inc., during the 10th annual Commercial Real Estate Forecast Conference Jan. 24.

During the Chicago event, hosted by Illinois Real Estate Journal and the Real Estate Publishing Group, Zell and Cafaro drew a crowd of more than 1,000 attendees to their kick-off discussion.

The strength of multi-family housing played a part in this chat. The fact that Zell pronounced multi-family as the strongest segment of the commercial real estate business was no surprise. But his thoughts on the future of single-family housing and homeownership were.

For decades, the federal government pushed homeownership. The thought went like this: Homeowners are more likely to invest in their neighborhoods than are renters. This means that homeownership is good for the country.

Of course, this doesn’t hold when mortgage lenders pass out mortgage money to borrowers who can’t afford to pay it back. All that does is lead to the surge in foreclosures that is now swamping the economy and helping to prevent a more robust recovery.

During his discussion with Cafaro, Zell said that the multi-family market today is benefitting from the single-family market’s woes.

“The thought was that as soon as you were able to, you should buy a house,” Zell said. “Everyone said that homes always go up in value. You should then buy as big a home as you can to take advantage of this. Of course, that turned out to be …” (I’ll let you fill in the rest of that sentence. But here’s a hint: Zell’s word starts with a “bull” and ends with a “t.”)

The single-family market will recover, of course. And multi-family will eventually lose some of its appeal. But Zell wondered during this week’s forecast conference just how long it will take before consumers regain that warm feeling that the American Dream of homeownership once gave them.

“The single-family market will get better. We will absorb the oversupply,” Zell said. “But there will be a long-term bitter taste left by what has happened with single-family housing. In our lifetime, we might not see housing return to its former hallowed place.”

If this is the case? Expect multi-family to remain the top-performing commercial segment for a long time.