When it comes to real estate trends, no one knows them better than Jed Kolko. I say that not because I have been to dinner with him, and met him at Inman & NAREE several times while he was Chief Economist and VP of Analytics at Trulia, the online real estate site that merged with Zillow, until the middle of last year. He just really knows his stuff.
And Jed says that urban neighborhoods are not the go-to nirvana we have been told they are, with cities and vertical living shooting up faster than the suburbs are spreading. You know we hear how downtowns are booming — in fact, the Dallas City Council just voted unanimously on a resolution dictating that Dallas Area Rapid Transit (DART, of which Dallas is a member) build a second downtown rail alignment (D2) as a subway, NOT a light rail train, because it will be less disruptive to the downtown landscape. Who cares about a train from Plano to DFW? Dallas focused on developing a great Arts District near downtown in anticipation of downtown, art-loving residents. And developers built luxury apartment after luxury condo in anticipation of the droves coming to the urban center like a pilgrimage.
Uh, actually not, says Jed:
In recent years, numerous studies and media reports have documented that college-educated young adults have been drawn to urban centers. At times some have claimed a broader demographic reversal in which cities grow faster than suburbs, and even the end of the suburbs.
The suburbs are the ones growing –like Frisco:
The share of Americans living in urban neighborhoods dropped by 7%, from 21.7% in 2000 to 20.1% in 2014. Even looking at only the densest urban neighborhoods where about one-third of the urban population lives, the share of Americans living in these neighborhoods fell by 5%, from 7.4% in 2000 to 7.0% in 2014. (See note at end of post for details on data, methodology, and definitions.) Headlines about educated young adults flocking to Brooklyn and San Francisco aren’t wrong – but they are far from the whole story and are unrepresentative of broader trends. Other demographic groups are suburbanizing faster than the young and rich are piling in to cities.
Who is piling into the cities? Children of the rich, whose parents or trust fund checks support them and the higher cost of living, or rich, young, educated Whites without school-age kids.
People, says Jed, are not urbanizing: money is.
Urban neighborhoods – especially higher-density urban neighborhoods – grew richer between 2000 and 2014. But only higher-income households became more urban over these years. The poorest tenth of households was 12% less likely to live in urban neighborhoods in 2014 compared with 2000, and 17% less likely to live in higher-density urban neighborhoods. In contrast, the richest tenth of households was 12% more likely to live in higher-density urban neighborhoods, and only 1% less urban overall in 2014 than in 2000. The top four income deciles were all more likely to live in higher-density neighborhoods in 2014 than 2000, while none of the bottom six were.
Oh and don’t look towards seniors to fill in those urban dwellings. Seniors, says Jed, are becoming significantly less urban.
All age groups 65 and older were at least 10% less likely to live in urban neighborhoods in 2014 than in 2000; that’s true for the high-density urban neighborhoods, too. Unlike young adults, the decline in urban living among older adults is similar for those with and without college degrees. And, unlike for young adults, the decline in urban living among older adults is generally steeper for those with higher incomes.
Now why would that be? Taxes, perhaps? Why would a retired couple living on a fixed income of $45,500? That’s the average income Baby Boomers say they want to live on in retirement, which requires at least $1.1 million in retirement savings. But a recent BlackRock survey indicates the average pre-retirement baby boomer (55-65 years old) has only $136,200 saved for retirement. Hello, that’s like $10,000 a year. You would need two to four million in investments to live in a high tax, higher cost urban area.
So Boomers are going suburban to stretch those dollars. Or maybe to be closer to their grandkids. In any case, Jed says that “prior to the trends of the 2000s, older adults were already less likely than younger adults to live in urban areas. Therefore, the least urban age groups have become yet less urban. Even those who have recently moved and those who are in the position to afford expensive urban housing are increasingly living outside of urban neighborhoods.”
All great stuff to know when you think about buying investment real estate.
