Lennar Corporation is Taking Advantage of the New Housing Reality, And You Can Too

As the saying goes, "30 is the new 20". What this implies is that true adulthood doesn't begin until much later. It is taking young adults longer than ever to get through college (the five-year plan is becoming the norm) and to find a job after graduation. As a result of this, more and more 20-somethings and even 30-somethings are moving back in with their parents, and Lennar Corporation  (NYSE: LEN  ) homebuilders sees opportunity.

The new American home life
According to recent census bureau data, only about one-third of U.S. adults between the ages of 18 and 32 live on their own. The rest are pretty evenly divided between living with parents or in some sort of roommate situation or with friends.

This is mainly due to the high unemployment rate for young adults, as recent graduates are finding it very difficult to start their careers. About 15% of American adults under 24 are not in school or working.  Of adults in the 18-32 age group, only about 65% are employed full-time, according to the Pew Research Center. 

A new concept
Lennar has introduced a new concept in the suburbs of the U.S. that, if successful, could easily spread throughout the nation. The company is calling these new homes "Next Gen" units. Essentially, they are building homes that are two separate homes (one is more like an apartment) that share a common living room, but are like two separate houses in almost every other way. Each home has its own bedrooms, bathrooms, and kitchen, as well as a separate entrance.

Lennar offers an extensive selection of these Next Gen floor plans in many different sizes and configurations, with the common feature being a separate suite. The floorplan below shows the first floor of a two-story home offered by the company, with the separate suite shown in blue.


How is it doing so far?
Even though the company has only tested the "next-gen" concept on a relatively small scale, the company has already sold about 600 of the units, according to Lennar marketing manager Tim Fohr. They have appealed to homebuyers looking to house relatives for a couple of reasons.

First, they aren't duplexes. The homes share common utilities, mailing addresses, and more, while providing the illusion that your 35-year old or your mother in law isn't really living with you. Plus, many neighborhoods' zoning does not allow for duplexes.

Also, Lennar has done a great job of making the next-gen homes virtually indistinguishable from other homes in their neighborhoods, aside from an extra exterior door. While many people want to be able to house relatives and guests, most don't want something that looks like an apartment.

Imitation is the sincerest form of flattery
One of the best indications that a trend is beginning to catch on is when other companies begin to do the same thing. There are many smaller builders throughout the U.S. that are building these units, which have been called "granny flats" in the media recently.

For example, one North Dakota builder has completed three homes with separate apartments built on to the floorplan. The New York Times has reported a strong increase in the number of existing homes being renovated into multigenerational homes as well.

Why this will work for Lennar
You may think that if the economy continues to improve, young adults will begin moving out of their parents' homes, but don't be so sure about that. The average cost to rent was rising at an annual rate of around 3.9% per year as of 2013, according to Trulia. The key point here is that the cost of renting a home is rising faster than the rate of inflation, and more importantly, faster than the rate of income growth.

Even in this improving economy, it seems more likely that America is transitioning back into multi-generational housing being a very common situation, as it had been in our not-so-distant past. About 51 million Americans lived in a multigenerational home as of the latest census data, so there is certainly demand out there. It looks like Lennar has come up with the best product so far in this still-developing niche market.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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8/31/2015 11:06 AM
LEN $50.81 Up +0.38 +0.75%
Lennar Corp CAPS Rating: ***