michaelcarliner.com Blog

Musings on Housing and the Economy

Suburbs Passe?

Reports during the past couple of weeks by CNN (6/16), the Wall Street Journal (6/17), and the New York Times (6/25), indicated that the housing market slump and the increase in gasoline prices have had disproportionate adverse impacts on outer suburbs, and have also suggested that the long-term suburbanization trend may be finished.  These reports have cited Christopher Leinberger (of Brookings and University of Michigan), including a March 2008 article that he wrote for the Atlantic, as well as Arthur Nelson (Virginia Tech) and others.  Some of their assertions, such as the notion that there will be a surplus of 22 million large-lot (> 1/6 acre) homes by 2025, with recently-built McMansions carved up and occupied by lower-income households squeezed out of downtown areas, are pretty ridiculous.  But there are short-term adjustments and longer-term trends changing the pattern of development.

Analyses by Joe Cortright (CEOs for Cities) and David Stiff (Fiserve) find that house prices have weakened more in outer suburbs than in more central locations in metropolitan areas.  That may be attributable to gas prices, although those are also the areas where it was easier to build—and overbuild.  Data from the Census Bureau's Housing Vacancy Survey showing that the homeowner vacancy rate for units built since 2000 is over 10 percent, while the rate for older units is only 2.2 percent, are consistent with the notion that areas with newer housing are more troubled.

Demographics should favor downtown and urbanized suburban areas over the coming decade.  For the past 40 years, the demands of baby boomers have dictated the character of new construction, leading to apartment construction in the early 1970s, followed by starter single-family homes in the 1980s and by larger, trade-up homes in the 1990s and the first half of this decade.  Now the children of the baby boomers, born in the 1980s and 1990s (and known as "the Echo", "Generation Y", or "Millenials") will increasingly influence new construction.  This will initially enhance demand for apartments and townhouses and communities with more urban character.  (There has also been conjecture that boomers will trade in their McMansions and move into cities, but that's less likely.)

Even without the recent rise in gas prices, commuting has become more frustrating.  This is reflected in the surveys of prospective home buyers conducted periodically by the National Association of Home Builders.  One of the questions regularly included in those surveys has been "What would you be prepared to accept in the home to make it more affordable for you?"  Twenty years ago, 35 percent of respondents said that they would accept a longer commute, but in the latest survey, only 21 percent gave that answer.  On the other hand, the share willing to accept a smaller house grew from 18 percent to 27 percent.  Over the past 20 years, the median new home size increased from about 1,800 square feet, to 2,300, and the share of commutes exceeding 10 miles increased from 42 percent to 53 percent, perhaps tipping the balance.

Central cities have seen some growth in recent years, with 18 of the largest 25 gaining population between 2000 and 2006, but large cities have not grown as fast as their suburbs, and the Texas and Arizona cities with the highest growth have political boundaries that essentially include their suburbs, with land area of 240 square miles or more. Most of the large cities that grew did so because natural increase and immigration offset net domestic outmigration.  Growth in households exceeded population growth, however, as single-person households replaced families with children.

In general, a shift toward more urbanized development likely won't mean a revival of older cities, beyond a few gentrified neighborhoods.  Rather, satellite and suburban areas will become more like cities.   Especially for older, inner suburbs that means more city problems as well as city amenities.

A key factor in the relative growth of cities and suburbs has been the movement of jobs to the suburbs.  That contributes to demand for apartments etc., in the suburbs, and frustrates the development and use of mass transit.

I created some tables from Census Bureau data showing information about cities and suburbs, mainly using the designations of principal/central cities and metropolitan areas.  Most of the information only goes through 2006, but I don't expect that later data will show radical changes yet.