Back to the City: Déjà Vu All Over Again
By: Michael Maxwell, a 2013-2014 NAIOP Distinguished Fellow; managing partner of MAXWELL+Partners, a real estate strategy and development consultancy, and a professor in Nova Southeastern University’s graduate real estate development program
Through the rearview mirror of 2013, the demographic preferences that are shaping real estate’s future are coming into clear view: The emerging millennial generation is creating a strong “back to the city” movement, with the baby boomer generation as its partner.
Post-World War II prosperity created two trends in U.S. real estate development. One was suburbanization, fueled by the explosion of births and economic prosperity that enabled the mass purchase of assembly-line-built houses and automobiles. Then urban renewal in the 1950s and 60s and a back to the city movement in the 1970s and 80s were fueled by billions of dollars in federal aid, including subsidized homeownership through easy financing and government-purchased mortgages. Urban renewal meant billions of dollars were spent removing slums and improving urban infrastructure and roads, while billions more were spent on suburban highways, infrastructure and education. For 50 years, expanding middle-class prosperity combined with conflicting federal policies enabled people to take fast roads out of town to cheap housing and good schools. They also stunted massive efforts to remake cities as attractive places to live and work.
The result for cities was that real estate values and essential services declined. Land prices eventually fell to the point where adaptive reuse could recapture the economic value of former churches, schools, office buildings and factories by converting them into lofts, condos and apartments. People began to repopulate cities. At the same time, key institutions, including governments, museums and universities, remained anchored to cities because relocation costs were too high. With the help of billions of dollars in federal aid, urban housing stocks have been steadily rebuilding since the 1990s, when cities became more competitive and began to gain traction. Since the 2000s, ever-increasing numbers of cities have been effectively competing with suburbs on costs, housing choice, schools and retail services.
Fast forward to today. The baby boomer generation (about 76 million strong) and the millennials (about 77 million) together total more than150 million people. Collectively, both the millennials and boomers will continue to reshape the nation’s built environment in coming years, because they represent nearly half the U.S. population. Most strikingly, multiple surveys reveal a growing preference for urban living among both generations. Approximately 40 percent of each cohort, about 60 million people, currently prefer to live and work in denser, walkable city neighborhoods accessible by transit, suggesting steady long-term growth in urban populations — and in new commercial real estate projects to meet their needs.
Surveys also show that the two cohorts share more than common preferences. They also face many similar economic issues. Boomers, many of whom are facing less secure retirement years, want to reduce expenses, downsize belongings and slash commuting costs — and are willing to have less living space to achieve those goals. Today’s underemployed millennials, on the other hand, need to live inexpensively, and so actively seek to live, work and play in cities because of their often greater affordability, housing choices, walkability and transit options. Increasingly, both generations are seeing cities as the answer to their wants and needs.
Ultimately, this demographic convergence is about money. Both groups are experiencing less promising economic futures, which make suburban housing and transportation too expensive for underemployed millennials and their retiring/downsizing boomer counterparts. Surveys among both cohorts indicate that money concerns are factors in housing selection, which is one reason why walkable city neighborhoods with transit options are rapidly becoming more preferable locations than car-centered suburbia. One partial explanation comes from the U.S. Department of Labor’s Bureau of Labor Statistics calculations that the average yearly cost of automobile ownership in 2013 was $8,003 while the average annual cost of a transit pass was about $1,500, meaning a savings of $6,500 for those who are able to use transit rather than own a car.
Numbers don’t lie. Emerging development opportunities will continue to expand in cities catering to both baby boomers and millennials. In a reversal of the original Social Security model, today’s older people are subsidizing the young. More affluent boomers are creating a market for middle-income city housing that, as they age, will become the millennials’ new cribs. Nimble development companies focused on capturing this emerging market trend will find opportunity for decades to come. Like the philosopher Yogi Berra said, “the future ain’t what it used to be.”