Our homes are our castles, as the English phrase says. Our homes are also the second largest market for the chemical industry, worth about $18 billion annually. The average new single home uses around $15,000 of chemicals in its construction. As a result, our changing lifestyle preferences are having a major impact on the chemical demand of products such as paints, drapes, carpets, acrylics, cables and sidings, as well as durable goods such as washing machines and refrigerators.
This is the third such housing shift that has taken place since the 1970s, when the vast BabyBoomer generation began its so-called ‘flight to suburbs.’ Families decided they wanted to have more space around them, and so home builders created new developments away from city centres. Then as housing became more affordable due to falling interest rates in the 1990s, a new trend developed toward larger McMansion-style homes. Additionally, 2-income families became widespread for the first time in history as more Boomer women decided to join the workforce.
The chart highlights how these changes impacted the types of new homes being built. They set in motion a trend away from multi-home construction, which had been a third or more of all new housing. By the 1990s, only 1 in 5 new homes were apartments and condominiums, as single family homes gained in popularity. And this trend continued into the 2000s, as housing affordability increased still further as the Federal Reserve sought to encourage home ownership into the sub-prime sector.
Today, however, the ratio is shifting back towards multi-home construction. More and more of us are choosing to live in the cities again. Older Boomers and younger people increasingly view cities as vibrant and convenient places to live. Thus, in June of 2015 the multi-home proportion jumped to 41%, back to the levels seen in the late 1960s and early 1970s.
What happens next? Will this trend continue and take us back to the days when most people lived in city centres? It seems very possible, as the trend away from the suburbs is coinciding with a decline in the number of young Americans owning a car. Census Bureau data shows that fewer than 3 out of 4 high school seniors have a driving licence, something inconceivable for the Boomer generation who saw passing the driving test as part of a ‘rite of passage’ into adulthood. And life in the suburbs can easily become quite inconvenient without a licence and access to a car.
In turn, these lifestyle changes are having a major impact on chemical industry demand. Not only have new home starts virtually halved from their 2.3 million peak in 2006 to just 1.2 million today, but apartments and condos need only around half the amount of chemicals and plastics compared to single-home construction. This means that chemical industry companies will have to pay much more attention to the changing demand patterns in the housing market. They can no longer simply assume their volumes will always grow in line with GDP.
Paul Hodges is chairman of International eChem (www.iec.eu.com), trusted advisers to the chemical industry and its investment community. He is a member of the World Economic Forum’s Industrial Council on chemicals, advanced materials and biotechnology, and presents the ACS ‘Chemistry & the Economy’ webinars.