ROI and Efficient Design
What is “Efficient Design” and Why Does it Matter for ROI?
An efficiently designed interior space is one that considers how each square foot will be used throughout the course of a day, week, month, and over the long-term, with the goal of not only maximizing functionality within a physical footprint, but more importantly, increasing the livability quotient for the occupant. Truly efficient design starts with a macro view of the overall project and considers everything from community integration to the smallest ergonomic detail within the space. For increased ROI, the challenge for the architect, developer or builder is to not rely solely on past decisions, but to look forward and ask provocative questions about each element of a project and base decisions on current, data-driven research.
Efficient design takes a holistic approach, and starts – accordingly – with the occupant:
• Who will be living there?
• What is their lifestyle throughout the course of a day, week, and over the long term?
• What features and amenities are most important to them?
• How long will they stay in this home?
Some of these answers may be surprising and could affect some critical early-stage design decisions.
Know Your Audience
Knowing your audience is the first step to allocating time and resources in the most efficient manner. Without data-driven research and analysis, there is a high risk of allocating valuable time and resources to the wrong place.
Did you know?
• A person living alone is one of the most stable household arrangements. Most people assume that a single person living alone is a relatively temporary arrangement. But in reality, the opposite is actually true: over a five-year period, only married couples with children are more likely to remain in the same household configuration1. Armed with this knowledge, the design decisions made for a studio apartment might be drastically different than if the assumption is made that single-person households are a transient demographic. A developer might be less likely to invest in higher-end finishes, for example, if they believe that occupancy will be short and turnover will be high.
• People who live alone eat and socialize outside of their homes more than people who live with others. Once you know that people who live alone cook and socialize at home less than households with more than one person1, space planning and design decisions regarding the kitchen in a small studio apartment would probably need to be reevaluated, as would decisions about the building’s community spaces.
• Young, urban professionals are overwhelmingly willing to give up a car and pay more per square foot for smaller spaces in order to live in an amenity-rich building in prime, transportation-centric locations2. Knowing this, the financial projection for a building could change dramatically.
Why is this important?
Demographic information like this can affect some important design and infrastructure decisions and help allocate your budget and resources efficiently and effectively. With the right research and accurate analysis of the data, designing and building a space – whether large or small – that meets the needs of the occupant and is as efficient as possible will most likely cost less.
How Are Today’s Households Different?
U.S. household configurations and lifestyles are vastly different today than they were 50, 20 or even 10 years ago, yet for many reasons our housing stock has not adapted to reflect these demographic shifts.
Over time, the average U.S. household size has been steadily shrinking, yet the average size of new U.S. homes has consistently and steadily increased.
And U.S. household compositions have shifted dramatically, even over the past 30-40 years. Today, more people are living alone, there are fewer nuclear families, while multi-generational and non-family households are on the rise.
Who Could Benefit From Efficient, Flexible Housing?
Across the U.S. there are distinct mismatches in current and projected housing needs vs. available and planned stock – for many household types3.
When the desired housing is not available, the market will reconfigure what is available. Examples include:
• The “Craig’s list market”: Illegally subdivided, unregulated, under-the-radar spaces, also frequently unsafe.
• Multi-bedroom homes originally built for the dwindling nuclear family are being shared by non-related adults with multiple incomes so that the one- or two-income nuclear families that do still exist are unable to compete financially.
Designing more efficient, flexible homes for the households that currently exist – and planning for projected shifts in household compositions – can help close the gaps and would benefit anyone who is unable to find appropriate housing that fits their needs:
• Young Professionals
• Families and Extended Families
• Empty Nesters
• Second Home Owners
What is the Value Proposition for the Developer?
Any model of housing must be profitable to the developer for it to be successful in the long-term. Building housing units that meet the needs of the households in a specific community is the first step toward ensuring a profitable development, and as noted earlier, the demographic data is frequently surprising. Any housing unit of any size can likely benefit from a dose of efficient design. In a simple, apples-to-apples, single-family home comparison, a home with the same amenities and finishes – but fewer square feet – would clearly be less expensive to build and operate than a comparable, but larger home. In multi-family buildings, comparing the cost of unit sizes is a bit more complicated. As space gets smaller, factors such as location, interior functionality, design, and amenities play a larger role in marketability and the project might require a fresh perspective with regards to the financials. With smaller units comes higher density and therefore more units in a building. More units mean more high-ticket kitchen and bathroom spaces, which will mean higher overall costs. But smaller, efficiently-designed units can frequently command more revenue per square foot than a traditional layout, and the additional revenue should easily offset additional construction and maintenance costs.
If a developer could shave off even a few square feet in multiple units – while retaining a full range of functionality and maintaining a high level of aesthetics – the financial implications could be wide-ranging and long-term.
What is the Value Proposition for the Occupant?
The decision to live in a smaller, efficiently designed space is usually multi-faceted:
• For single people who want to live alone, a micro-unit can cost 25%-30% below a “conventional” studio apartment. For families or other households, a home designed with multifunctional spaces can be physically smaller – and therefore less expensive – yet still provide the functionality and features required.
• For occupants of furnished or semi-furnished apartments, the built-in or semi-built-in furniture is paid for by the developer and, like a kitchen, the cost is rolled into the monthly rental or mortgage providing enormous benefits to the end-user.
• And with lower utility bills and taxes where applicable, smaller spaces can also cost less to maintain over time.
• An efficiently designed space will take into consideration, anticipate and encourage the social needs of the occupants.
• Living in a smaller space can result in less time spent on care and maintenance, leaving more time to socialize.
• Any smaller space can be more energy efficient than an equivalent, larger space. As density increases in multi-unit buildings, energy use and greenhouse gas emissions per person decreases.
• A smaller space requires not only fewer resources to build, it requires fewer furnishings to fill it.
• Smaller spaces can keep you more connected with the people you live with. Large, cavernous spaces aren’t as intimate and comfortable as a room that’s scaled down to a person’s size. In other words, Versailles may be impressive to visit, but you wouldn’t want to live there. A lot of today’s 5,000-square-foot homes are designed to overwhelm, not welcome.
For single-family homes, fewer natural resources are required to build and operate a smaller single-family home than a larger one. For multi-unit buildings, as density increases, energy use and greenhouse gas emissions per person decreases.
To Furnish or Not to Furnish?
Today, there are more than 2,600 micro-units currently in the planning or building stages across the U.S. Approximately 50% will be offered as furnished units by the developer2, almost all including transforming, multi-functional furniture.
The advantages to the occupant are clear:
• The cost of the furniture is built into the monthly payment
• With no need to purchase the primary pieces of furniture, these units are basically move-in ready
But the advantages to the developer are also compelling:
• Furnished units rent faster than unfurnished units, and at a premium that more than covers the cost of the furniture over time.
• Anecdotal evidence has shown that when small spaces are furnished with appropriately sized – and appropriately functional – furniture, the occupant is more likely to be happy in the space, and will stay longer than if they feel cramped by oversized, un-functional furniture.
Micro-Unit Case Study
Studies2 have shown that those in the market for studio apartments are very willing to opt for a “micro-apartment” if:
• The monthly cost is 25%-30% below market for a traditional studio apartment
• The location is desirable
• There is public transportation available
• There are desirable building amenities
Considering that a conventional, 500 square foot studio apartment in Washington D.C. would rent for $2,000/month, an efficiently designed 300 square foot apartment in the right location and with the right amenities would easily secure $1,500/month – 25% more per square foot than a traditional studio apartment.
It is, of course, important to note that in comparing a “micro-unit” development to a traditional studio apartment development, for example, there would clearly be higher fixed costs for more bathrooms and kitchens, due to the additional units: an estimated 5% to 10% higher cost per square foot. In this quick case study, which is based on actual rental data, the increased cost of construction and additional operating expenses incurred with the additional units and occupants would easily be offset by the 25% increase in revenue per square foot.
1 Going Solo, Eric Klinenberg, 2012
2 Living Small – The Design & Development of MicroUnits in the National Capital Region; February 2014, RCL Co.
3 Citizens Housing & Planning Council