SAN FRANCISCO — The financial crisis and the evolution of the Internet away from a culture of "search and surf" to a "friend era" driven by social networking sites have produced profound changes in consumer attitudes that must be understood in order to thrive during the recovery, consumer behavior experts told attendees at a homebuilding industry conference this week.
Consumers feel burned by the advice they received from their "trusted advisers" in the lead-up to the financial crisis, including real estate professionals, said J. Walker Smith, executive vice chairman of market research and consulting firm The Futures Co.
"The outrage simmering beneath the surface is not to be underestimated," Smith said. People feel they were "cheated" and "conned" by bankers, mortgage lenders and politicians, among others, and that those "betrayals" have gone unpunished, he said.
That’s one reason consumers are increasingly turning to the networks of friends they’ve created on social networking sites like Facebook for guidance, Smith said.
That may seem obvious to real estate professionals who have already embraced social networking. But Smith unleashed a barrage of statistics to back up his contention that the "friend era" made possible by social networking and technology in general is facilitating deeper changes in society that have been accelerated by the economic downturn.
Americans are moving away from the notion of an "almost radical sense of individualism" — in which success is achieved at the exclusion of others — to "a more collective sense of how we achieve individual success," Smith said.
There’s a growing belief that personal accomplishments require connections with others, and that networks, and not just hard work, are a requirement for success.
"This is a fairly big change in American society in the last two decades," Smith said — one that is also manifesting itself in the real world.
While the American Dream will still involve homeownership, this change in attitude means the notion of community and locale are becoming increasingly important to consumers, he said.
Others participating in a panel discussion, "Reframing the Dream: A Future Vision of the Way We’ll Live," at the California Building Industry Association’s Pacific Coast Builders Conference (PCBC), agreed.
Studies show that participation in social networking also drives people to engage in more real-world activities, whether that’s seeking out face-to-face meetings with friends in cafes or getting together to play soccer in a local park, said Alex Steffen, founder of Worldchanging, a Seattle-based nonprofit that fosters discussion of sustainability issues.
While homebuilders have been focused on the "house product," consumers are "all about neighborhood" and community, said David Howerton, chairman of Hart Howerton, a consulting firm that offers to help landowners and developers "create places that have a competitive edge in their markets."
"In places where prices have been bid up year after year — that has everything to do with the community," Howerton said. "The house might be pretty nice too, but it’s not just the house" that seals the deal.
That’s an issue often neglected by the housing industry, which "got about as relevant as General Motors," Howerton said. "They didn’t reinvent the product on broader terms."
Builders who succeed in this new environment must make the "mental leap" and realize "we are not in housing," said Brent E. Herrington, president of Hawaii-based Kukui`ula Development Co.
Instead, Herrington said, developers need to think of their job as creating communities that are targeted at subsets of consumers with shared values.
"We have to stop thinking at the macro level of the consumer as one big homogeneous, amorphous thing," Herrington said. "We must become masters of niches and submarkets, understand them, and surprise and delight them."
In order to do that, developers must be able to "solve for a particular land opportunity you’ve identified, and say who can this serve? What does it stand for? What’s it about?"
Consumers "will reward us handsomely if we can deliver," he said.
Creating a niche community is more challenging than building a giant subdivision of tract housing, Herrington said, but "it aggregates up into being a nice big robust company if you’re good at it."
Steffen said sustainability will be an issue that helps determine the success of communities, because the era of cheap energy and unlimited resources is also coming to an end.
"I think we’re still in a pretty profound state of denial" on that issue, Steffen said. "There are another set of storms on the horizon" related to the availability of resources. The global economy will create a middle class of 4 billion people, he said, creating a resource "pinch point" that many are still oblivious to.
While many Americans still believe that "cheap energy is a birthright, and a 90-minute commute is not a value decision," others are already looking ahead, seeking "zero energy" houses in communities where they can walk to work and access local food, Steffen said.
Herrington said the desire for more urban lifestyles is real, but "people in the real estate industry could figure out real fast: there’s not enough capacity to make 10,000, 20,000 or 30,000 units a year available in these urban settings."
Herrington said the concept of the "Edge City" — a concentration of homes, businesses and amenities outside of established urban boundaries, as put forward by Joel Garreau in his 1991 book of the same name — is still valid.
Smith cited the more recent work of Joel Kotkin (also a PCBC speaker), who envisions an "archipelago of villages" in his book, "The Next Hundred Million: America in 2050."
But Herrington, for his part, doubts that many developers are thinking in such visionary terms.
"We’re all sitting here in the aftermath of a big bomb going off in our industry, and everybody’s mind is on transactional value — how do we score some lots at 30 cents on the dollar," Herrington said. "That’s OK — we’re in the moment we’re in — but that will last about as long as it takes us to blink."
In the long run, developers will have to think about "the totality of experience," he said. It will be up to the senior executives at homebuilding and development firms to tap the minds of experts who can help them "align capital" with "the mindset of the consumer."
Not in question, for the most part, is that consumers will continue to aspire to homeownership, and that the government will provide incentives to help them achieve that goal.
The United States was founded on the notion of private property rights, and being a small landholder or homeowner was a core value, Smith noted.
From the Homestead Act to the homebuyer tax credit, "the government has done lots of things to enable people to realize this aspect of the American Dream" — a "Jeffersonian ideal" that isn’t going away, Smith said.
Smith also dismissed as an invention of the news media the idea that consumers have embraced a "new frugality" in the aftermath of the recession.
"Frugality is not what people learned from this recession," Smith said, citing surveys of consumer attitudes, rising household net worth, and falling debt levels. "They learned economic risk is something they can’t ignore in their lifestyles."
Smith explores this idea at length in a white paper, "A Darwinian Gale: The Recovery Consumer Marketplace in the Era of Consequences," available online at darwiniangale.com.
"We have millions of people whose last homeownership experience ended in catastrophe," Herrington acknowledged. For now, "that consumer is very likely looking for something that keeps their options open," which means renting.
But the wild swings in housing aren’t going to drive Millennials — the generation that came of age at the turn of the century — into rental housing, Herrington said, agreeing with Howerton that rental properties often don’t address the needs of niche consumers.
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