As young adults continue to make their homes in urban centers, the outlook for suburban real estate remains uncertain. Thus, it seems the future of residential real estate is in the city — or is it? A new report by Trulia claims more households are choosing the suburbs:
The nationwide graph shows a smaller share of individuals living in urban neighborhoods in 2013 than in 2000. This is true for age groups 18-29 and those aged 45 and older. Households with adults in their 30s and early 40s continue to reside in urban neighborhoods at roughly the same rate.
However, according to a different report by the 2010 Census, the ten-year urban population increase in California’s major metropolitan areas were substantial, at:
- 3% in Los Angeles;
- 24% in Sacramento;
- 11% in San Diego;
- 2% in San Francisco-Oakland; and
- 8% in San Jose.
Different ways of measuring, different results
How to reconcile theses seemingly conflicting reports?
Trulia classifies a suburban area as a neighborhood with a greater number of households living in detached single family residences (SFRs). Urban areas are neighborhoods where more households live in multi-family residences.
On the other hand, the U.S. Census classifies an urban area as a Census tract which encompasses more than 50,000 residents. Trulia’s different way of classification accounts for the diverse trend. This is also true for measurements that require a more nuanced discussion, like notions of average homebuyers and affordability.
For instance, the Census tracks Bakersfield as an urbanized area due to the high quantity of residents, while Trulia defines most of Bakersfield as a suburban area due to the majority of SFRs in the area.
By Trulia’s specific neighborhood-level measurements, SFR neighborhoods are the preferred living arrangement for most households nationwide. However, the Census’ broader measurements show the population of metropolitan areas growing rapidly.
So what will happen to the suburbs?
A nuanced reading of both data sets shows us that SFRs may be the preferred living situation (and who wouldn’t want more space, given the chance?) But the realities are such that more and more obstacles face homebuyers seeking to buy SFRs in desirable locations — near the jobs and cultural amenities offered in cities. The number one obstacle? Out-of-control pricing.
Average home prices in California increased 160% from 2000-2013. Over the same period, real incomes grew by only 4%. Unless we see prices crash back to pre-Millennium Boom levels (which is both unwanted and unlikely), homebuyers are only going to be able to qualify for less home.
This ridiculous imbalance of home prices and incomes means today’s first-time homebuyers — members of Generation Y (Gen Y) — are forced to opt for more modest residences than the previous generation. Further, Gen Y homebuyers need to wait longer to buy their first homes, as they had the misfortune of entering the job market just as the Great Recession hit in 2008.
Another piece of evidence for the coming boom in city living: the number of one-person households in California has grown significantly, from 19% in 2000 to over 24% in 2013. Smaller households need less space and are more likely than family households to list urban cultural amenities on their list of wants.
Until Gen Y can collectively muster enough down payment savings and hit the homebuying market, they will continue to rely on cheaper multi-family dwellings. Further, if they can afford it, these apartments will be located in city-centers, close to their jobs and social lives.
And if they can’t afford it? Poor households are increasingly making their homes in the suburbs, forced out of the city by too-high prices.
City officials can make urban housing more affordable for its residents by loosening residential zoning restrictions and allowing more construction. But for now, city home prices and rents are rising quickly out of the reach of most, leaving many urban areas to the very wealthy and suburbia to most everyone else.
So, sure, expect to see some suburban growth in the coming years. But the real profits will continue to be found in the city.
