The Ground Floor

In Years to Come New Real Estate Development Patterns will Evolve

This post was written for The Ground Floor by Trisha Riggs, vice president of communications at the Urban Land Institute.

In: Inner-ring suburbs. Out: Exurbs. In the years ahead, changes in demographics and consumer behavior will drive new real estate development patterns that reflect a trend toward more urban suburbs, according to industry experts at ULI’s Real Estate Summit at the Spring Council Forum in Boston.

Well-known analysts Joel Kotkin, Robert Lang, Richard Florida, and Christopher Leinberger offered different views on what’s ahead, but they all agreed that most of the growth in U.S. urban regions (more than 100 million will be added to the population by 2050) will occur not in downtown cores, but in the suburbs.

The catch: The suburbs will grow differently than they have in the past, reflecting a trend toward denser development and smaller homes on smaller lots, and less dependence on cars. The winners: close-in suburbs with an urban feel, featuring town centers as a focal point, with ample recreational, shopping and entertainment opportunities, and which are near employment centers. The losers: big houses on big lots in isolated suburbs on the edge. The reason: three major demographic groups, all of whom place high value on time and convenience, none of whom want long commutes or long errands, and at least some of whom have soured on homeownership.

The groups:
• Aging baby boomers (55 to 64 years old): Although they are nearing retirement age, many will keep working out of necessity or by choice. Some will be forced to stay in their suburban homes until values recover. Those who are able to move will not choose traditional retirement locations or senior housing, opting instead for more mixed-age living environments that cater to their active lifestyles. Suburban town centers with a walkable urban "feel" will appeal to this group.  
• Younger baby boomers (46 to 54 years old), now in or entering their prime earning years: This group will also face a tough time selling suburban homes, hampering the ability of these boomers to move. Because the recession has left many younger boomers with flat incomes and less home equity, their ability to purchase second homes will be greatly diminished, curbing prospects in general for the second home market. However, like their older counterparts, they will be drawn to more connected, compactly designed communities when they are able to switch houses. 
• Generation Y: This tech-savvy generation has a population of about 86 million, more than the baby boomers. Gen Yers place high value on community; on diversity; on places (either virtual or actual) to gather; and share information, ideas and opinions. As they enter the housing market, they will be far less interested in homeownership than their parents were when they were young adults. Gen Y will gravitate toward walkable, close-in communities, choosing housing on outer edges only as a last resort because it is the most affordable.

One point repeated in several presentations: The housing collapse is a major factor behind some of the change in attitudes about where and how to live. Despite the recovery that is occurring in some housing markets, the number of foreclosures and "underwater" mortgages (loan amounts that are higher than the current value of the homes) continues to rise. The growing number of consumers who are choosing to walk away from those mortgages suggests a fundamental change from the long-held notion of homeownership as the ultimate "American Dream." This disillusionment over homeownership as a way to build wealth could persist for decades to come, as those entering the housing market will be more apt to rent longer, and to place more emphasis on buying for shelter rather than investment purposes.

Describing the new suburban development pattern as "smart sprawl," author and a fellow at Chapman University Kotkin said, "We can solve the problem of sprawl within sprawl itself." Mid-size cities, he said, will prove attractive to Gen Y, not only because they are affordable, but because many have transformed themselves into recreational and/or entertainment hubs, providing an urban lifestyle that is within their means.

According to Florida, author of The Rise of the Creative Class and other books on social trends, the "engine" that powers the next economic boom will be human creativity, and the places that meet the needs of the most talented and innovative workers from all types of employment sectors will be the most successful. "Place will be the organizing economic and social unit," he said.

The different lifestyles of both baby boomers and echo boomers will require the development community to provide products that are flexible in use, and that reflect the high mobility tendencies of the younger generation. "We are at a break with the past," he said, noting that society has entered an era in which time matters most of all. "We must respond by creating efficiencies in housing and transportation."

Moving Beyond 'Drive until you Qualify'

In a joint effort by the Chicago-based Center for Neighborhood Technology (CNT) and Washington, D.C.-based the Brookings Institute, an interactive mapping web tool -- the Housing + Transportation Affordability Index -- was developed to measure the true affordability of housing by applying transportation costs.

The tool provides housing and transportation costs as a percentage of income on a neighborhood-level basis for 52 metropolitan areas using 2000 U.S. Census data and analysis of household transportation costs.

Urban planners, policy-makers, and transportation and housing advocates measure housing affordability as 30 percent or less of household income. However, housing affordability is not always what it seems.

As Scott Bernstein, president for CNT explained during a presentation today at the Brookings Institute, the old adage of "drive until you qualify" is really no longer an appropriate measure of housing affordability. As gas prices increase along with suburban sprawl, much of the population is paying as much for transportation as they are housing.

Housing Prices at The Edges Falling Faster

It's always a (somewhat unexpected) pleasure when facts begin to support one's theories. So the report in the Sunday, January 20th Washington Post on their front page no less, was a welcome arrival. The headline of the report: Region's Home Prices Continue to Fall; Some Pockets Thrive.

Now before I'm accused of schadenfreude, and taking joy in falling home prices, let's be clear that I own a home as well, the price of which has fallen more than I care to say.  What was satisfying is that my theory about the greater volatility of home prices on the suburban edge appears to be reflected on the ground, at least in the Washington Metro region.

The Theory:

Even though regional development patterns have been the same in the past few years as the past few decades (since the late 1940's to be precise), and most housing has been built on the suburban edges, now some 50 plus miles from downtown, the market for this suburban edge housing is declining. This is due to a number of factors including:

• changing demographics (fewer households with school age kids),
• longer commute times due to growing traffic congestion,
• higher gas prices (and the growing realization that they will continue to rise for years to come),
• concern about the need to reduce driving and greenhouse gas emissions, and
• the growing desire to live in more urbanized settings among the Baby Boomers and their kids, the Echo Boomers, the two largest American demographics.

The Urban Health Advantage

A recent article in New York magazine by Clive Thompson called "Why New Yorkers Last Longer" pulls together some intriguing facts that anyone interested in walkable, mixed use, mixed income communities should consider. The article, as the title suggests, explores why the "average life expectancy" of New Yorkers has grown faster than that of the U.S. as a whole, especially in since 1990. Now it is 78.6, while the national average is 77.9; as recently as 1990, the average life expectancy of a New Yorker was three years shorter than the national average.

Certain factors may be unique to New York, such as the drop in the crime rate (New York is now the safest city in the U.S.) and new drugs that have extended the life of AIDS patients. But other factors are more generic to all urbanized areas.

Here are some excerpts:

Growth in the West: Arizona Takes The Lead

This post was written by The Ground Floor contributor and ULI director of media relations, Marge Fahey.

Arizona is the fastest growing state in the nation. Its current population of 6.2 million is projected to increase to 12 million by 2035. The U.S. population of 300 million will increase by 2.8 million per year; of which one in 14 will reside in Arizona.

This rapid growth will have consequences for Arizona and the West as a whole, according to a panel of industry experts assembled at ULI's fall meeting.

Phoenix will absorb 70 percent of the growth, while Tucson and the surrounding areas will add 15 percent. The Phoenix-Tucson area will merge into one large megapolitan area. This additional growth will consume 30,000 acres per year and 1,000 square miles over the next 30 years. Tucson has to grow in the state trust lands and has major water constraints; a population of 1 million is expected to grow by 20,000 people per year.

A More Vacation-Like Living Environment

A friend of mine just returned from an extended-family vacation at a village-style resort on the beach. Her family stayed in some units clustered around a common yard that led to the oceanfront. "It was great," she said. "The kids could run back and forth between houses, ride their bikes all around, and play in the open area by themselves, and we did not have to worry at all. They walked to the ice cream store. They walked all over the place."

I chuckled to myself. This was the same woman who, back home, insists on driving her kids everywhere. But, to be fair, she has little choice. Her neighborhood is connected to nothing, so she spents an incredible amount of time driving to pick up or drop off children, driving to volunteer, driving to shop, driving, driving, driving. She does not work outside the home, but I'd bet she spends more time in her car than in her home.

Yet, this is the same woman who complained about a dense, multi-use development planned not too far from her neighborhood. It would have a setting similar to what she so enjoyed on vacation; yet she could not visualize it in her own community.

Perhaps she believes such pedestrian-friendly environments should be reserved as places for visiting, not living. However, given the increase in mixed-use, walkable developments springing up everywhere -- certainly not just on the oceanfront -- I have to say that more and more people share a decidely different view.   

Are We Really There Yet?

At ULI's recent spring council forum, Ray Suarez, senior correspondent for "The NewsHour" in Washington, D.C., discussed the changing roles being played by cities and suburbs in 21^st century. Both appeal to different types of households for different reasons, and to the same households at different stages of their lives, he noted. "The great resorting of American lifestyles may be over," Suarez said. "In general, people are where they want to be or are planning to get there...There are plenty of Americas for everyone to choose the one they want."

The urbanization of suburbs through more mixed-use, dense development is "making it easier" to live in suburbs by reducing individual trips for errands, Suarez pointed out. However, he said, attempting the reverse -- in terms of making cities more suburban -- would likely backfire. "Cities need to resist the temptation to stop acting like cities...The membrane separating the city and suburb is becoming more permeable, so people can make more choices in (how to live out) different aspects of their lives."

Agree or disagree? Do you think "most people are where they want to be" in terms of living environments? It seems to me that demographic changes alone would challenge this theory. With baby boomers aging, and Gen Y wanting no part of the daily commute grind, I think big changes are in store for suburbs and cities, in terms of who winds up living where.

Two Takes on the Suburbs

The bad and the good of suburban development were highlighted in two recent articles. The first -- a holiday-themed missive from the Washington Post (brought to our attention by the hard working bloggers at DCist) -- pointed out that sprawling suburban development in the D.C. metro region is causing a shortage in the number of cut-your-own Christmas tree farms, as former tree farming land is being repurposed as new suburban developments. On the positive side, Monday's Los Angeles Times (via the essential ArchNewsNow) reports that a new study has found that as neighborhood density decreases, social interaction among neighbors increases -- making the suburbs a friendlier place to live than center cities.

How many of you still cut down your own Christmas trees? Do you find the suburbs to be more social than the cities? Let us know what you think in the comments.