Is it the end of the road for the American Dream in suburbia?

Between 2000 and 2011, the number of poor households in U.S. suburban populations increased by 64%, according to a study by the Brookings Institution. In contrast, the number of poor households increased 29% in cities.

A poor household makes less than $22,350 annually for a family of four, as defined by the Brookings Institution.

In California from 2000 to 2011, the percentage of poor households varied by region, though the overall trend was the same:

  • in and around Los Angeles, the number of poor households increased 5% in the city and 17% in the suburbs;
  • in and around San Francisco, the number of poor people increased 18% in the city and 56% in the suburbs;
  • in and around San Diego, the number of poor households increased 24% in the city and 50% in the suburbs; and
  • in and around Riverside, the number of poor people increased 47% in city and 63% in the suburbs.

The suburban increase in poor households was due both to:

  • suburbanites slipping into poverty due to job loss; and
  • already impoverished people relocating from cities to the suburbs.

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first tuesday insight

The main culprit behind the rise in suburban poverty is the lack of jobs outside of city centers. The number of unemployed suburbanites nearly doubled between 2000 and 2011. And jobs available in the suburbs lack the same quality as those in the cities — suburban jobs pay less and are generally less attractive to educated job seekers.

So why does an un- or underemployed individual leave the city, where jobs can be found, to move to the suburbs where it’s more difficult to make a living? The reason: the cost of living is exorbitant in cities compared to the suburbs. This is reflected in home prices and rents.

The cost to buy or rent housing is high in cities because of restrictive zoning. Zoning ordinance strangely limit the housing supply in attractive, downtown areas. Restrictive zoning (particularly that which limits building heights and density) leads to a scarcity of housing in cities where the good jobs are. This persistent scarcity unreasonably inflates home prices and rents — a cyclical sickness of the city that is easily alleviated with proper zoning.

first tuesday has long been an advocate of looser zoning in cities, especially along metro lines. Less restrictive zoning allows demand for urban housing — not myopic lobbyists bearing NIMBY (not in my backyard) signs — to control housing inventory. Looser zoning also goes a long way to help us avoid the price bubbles that push all but the wealthiest out of cities.

Related article:

Loosen the noose on urban density

Agent advice

If you’re a suburban agent, you are probably wondering if this trend will continue. The answer is both yes and no.

Yes, suburbia is and will be for the foreseeable future, second best. This is true in terms of income, home prices, jobs, cultural amenities and many other factors. All of these truths will continue to encourage those who can afford it to move to the city, gentrifying older urban areas as they settle in.

However, the number of suburban poor will diminish – slowly – as jobs recover. For the inland, suburban areas of California, this jobs recovery will likely occur in 2017, 18 to 24 months later than in the coastal cities.

If you’ve been following the Fed’s projections, you know that this is several years out from their optimistic outlook of a jobs recovery as early as the end of this year. The Fed is concerned with the entire U.S. economy, and most of the employment gains that are contributing to total job growth in the U.S. are coming from the cities.

Now, more than ever, the adage is true that the ‘burbs are the first to get hit and the last to recover.’ Urban city-centers are the epicenter of economic prosperity, sending wealth to their peripheries in time.

The pace of the jobs recovery in California’s inland regions has lagged behind the still-burgeoning recovery in coastal cities, San Francisco leading the pack. This is due to the types of industry the inland regions supported before the recession (like construction), compared to the quickly growing industries of the coast (like the tech and other service industries).

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Regional forecasts

Still, even once jobs and labor force participation have recovered and unemployment has returned to previous lows, it is unlikely that the large demographic of renters will suddenly decide to become homeowners again.

The banking deregulation leading into and seen during the Millennium Boom allowed many to become homeowners who could not financially support a home purchase. Today (and going forward, until the mistakes of the past are again forgotten), home financing is carefully guarded so that those less qualified to become homeowners are relegated to renting.

Therefore, if you are having difficulty finding buyer clients today, consider investing in property management. This recession-proof skill will serve you well now and in the future.

Re: Suburbs share of poor has grown since 2000 from The New York Times;

More poor live in suburbs than in urban areas, research shows from The Los Angeles Times