the Long Tail of Housing Demand

streetscape in New Orleans' French Quarter

   Builders made the same strategic blunder countless times leading up to the Meltdown: they focused on the sweet spot of the market. Today, the market is deluged with strikingly similar Sweet Spot Houses all over America. This may cause the housing recovery to take years longer than necessary, because banks won’t lend again and builders can’t build again until most of this huge oversupply of homogeneous houses is sold.

diagram of the long tail

long tail diagram - big head, long tail

   Chris Anderson’s excellent book The Long Tail describes the discovery of a powerful phenomenon of our aggregated age: The curve of available products begins with the “big head” of blockbusters and superstars on the left, but then drops off “sickeningly.” See how the curve seems to go quickly to zero? Before Amazon, everything after the big drop-off was invisible because no bricks-and-mortar store could afford to carry stuff with sales so low. Amazon was the first to aggregate these low sellers (books, to begin with) online, and what they discovered was that the sales curve extends further out to the right than anyone previously imagined. If companies are able to provide a nimble way of searching so that you can short-cut to the niche you want, the “long tail” of the sales curve extends almost forever. In many markets, there may actually be more sales in the long tail than in the short head of super-sellers and greatest hits, just as more light reaches your eye on a clear night from the billions of stars too faint to see than from the thousand or so that are actually bright enough to see.

suburban house near Birmingham, Alabama

Birmingham McMansion

   New home construction pre-Meltdown had an extremely big head and essentially no tail at all because very little of the product fell outside of the sweet spot in most markets (3 bedrooms, 2-1/2 baths, 2,000 to 3,000 square feet... you know the drill.) Most variations involved the addition of bedrooms, baths, square footage, and extra living spaces, but even the mansions were still almost always the same house type: single-family detached, sitting near the middle of the lot. There were townhouses and condos as the housing supply curve dropped down, too, but even though they were not detached, their bedroom and bath counts were likely close to the norm.

And the crazy thing was that the so-called sweet spot wasn’t necessarily even the sweet spot of the market, but rather the sweet spot of previous sales. Running a business this way is closely akin to driving by looking in the rear-view mirror, where you can clearly see what you’ve just run over, but not what you’re about to hit.

   There’s another half of the long tail equation that isn’t being discussed much. Anderson deals primarily with the long tail of supply, but that long tail would not exist except for the long tail of demand. It’s especially instructive to look at the long tail of housing demand, because it’s demand that’s been hideously under-served since even before World War II.

   Consider this: people may have a home-owning life of sixty years or more, from their early to mid-twenties to their early to mid-eighties. The period of time that children are at home (assuming the heads of household ever have children) is roughly 30% of that time. So for 70% or so of your home-owning life, you’re saddled with a house larger than what you need. And it isn’t just size, either. The types are so similar that it seems we’ve forgotten how much housing once varied.

sunrise at the west corner of Jackson Square in New Orleans' French Quarter

Jackson Square corner at sunrise

   Take a walk through great old neighborhoods like the French Quarter of New Orleans, and you’ll find housing types we haven’t built in a hundred years: corner court mansion units, garden court flats, mews units on their own mews courts plus B-street mews units, carriage house units, double cottages, sideyard houses, corner court houses, townhouses & double townhouses, rear court houses, studio flats (real ones, not the ones that just use that name meaninglessly,) workshop lofts, and the live-work units that were the staples of Main Streets all across America. And that’s just some of the house types you’ll find in the French Quarter, which is just one neighborhood of one American city. Each old city has its own wealth of home types. Look at Beacon Hill in Boston, for example. Or Charleston. Or Alexandria.

apartment building in New Orleans' French Quarter

French Quarter apartments

   The home types were so varied because the people were so varied... but today, the American population is more varied than ever before, even while our housing choices have become more bland. Nielsen Claritas has identified 66 market segments in their PRIZM system. Zimmerman/Volk Associates, long recognized as the foremost forward-looking market analysts of the New Urbanism, has identified a similar number of household types: everything from the New Bohemians to the Rustic Elders. None of these segments constitutes more than just a few percent of the market.

   The Sweet Spot House that the builders once drooled over actually meets the needs of probably 20% of the market by serving several segments well: Full-Nest Exurbanites, New Town Families, Heartland Families, etc. But the other 80%? They’re poorly served, but the builders don’t feel like they can build for them because their segments might only be 1% to 3% of any given market. But that’s a dark illusion... the builders would be much better off serving these markets. Here’s why:

   Let’s say that you’re a Young Digerati, and that a garden court flat would be perfect for you. Typically containing only one bedroom but just off Main Street, garden court flats are often a short walk from a B&B where guests can stay when they’re in town. It’s also a short walk from most of your other necessities of life, which suits you perfectly. Problem is, nobody is building them... nor have they built them in the past hundred years.

New Orleans French Quarter streetscape

French Quarter streetscape

   Now let’s say that you’re living in a city of 250,000 people, and that Young Digeratis are only 2% of the population of the city. That means there are 5,000 of you. Because Americans move roughly every seven years or so, that means that in any given year in your town, there are about 700 of you that are looking for a new house. What do you think a builder’s chance of success would be building 30 or 40 of these units that perfectly suit Young Digeratis, versus building the same old Sweet Spot House and competing with every other builder in town? The principles of supply and demand tell us that when there are 40 units that 700 people want, the clever builder who builds the garden court flats would have a Young Digerati bidding war on his hands.

   Everyone would be better off. The Young Digerati population would love it. The builder would do strikingly better than ever before. And the town would be a more interesting place. It’s time for the building industry to wake up and start satisfying the long tail of the housing market.


   ~Steve Mouzon


Legacy Comments:


Wednesday, February 24, 2010 - 09:41 AM

Anonymous

Steve,

I'm not a builder, but I'm awoken.  As an architect, this is great advice to help justify a greater mix of housing types in the town planning projects that come through our office.  Thanks for the ammunition.  Also, I've done a fair amount of research on French Creole building types and am interested in the housing typologies you listed here.  Where can I get more information about these underserved typologies, particularly the ones you mention from the French Quarter?

Thanks,

Jason Dunham


Wednesday, February 24, 2010 - 03:22 PM

Erik Evens

Steve has publishe a terrific collection of building type plan books, which are exactly what you are looking for.  The one we use for the New Orleans housing typologies is called "The Bienville Collection".  It has nice explanations of the French Quarter types, including rowhouses, flats, mews buildings, etc. Reading this book will open your eyes to the possibilities...as will walking the French Quarter with Steve, which I was fortunate enough to do last year.  Thanks Steve!


Sunday, March 7, 2010 - 10:52 AM

Steve Mouzon

Thanks so much for the comments, Jason & Erik! Jason, Erik is right... I describe all those underserved typologies in The Bienville Collection. Please feel free to design some, and submit them to the New Urban Guild plan collection!


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