What is the Future of the Suburbs?
I read an interesting article on real estate development investing by Jim Costello, Principal and Director of Strategy Services for CBRE Econometric Advisors entitled, “Fear Mongering and Economic Downturns” found here. https://www.twr.com/default.aspx?_title=AboutRealEstate&_id=1981 (A free subscription is required to view the article.)
I urge you to read the article in its entirety, but the over-simplified synopsis is as follows:
There is a growing belief that a combination of forces will cause suburban development to reach its peak, resulting in a permanent population shift to the cities. Those forces include:
- the current economic downturn will force people to reduce housing and travel costs, thereby driving movement toward the urban core,
- rising energy costs will further exacerbate the high cost of suburban living,
- a reduction of investment in our Interstate transportation system will drive the populace toward mass transit,
- a projected end to the mortgage interest deduction as deficit spending continues,
- the rise of the urban “creative class”
This evidence of the impending decline of the suburbs, most of which, Costello argues, hinge on tax ramifications and federal budgets, would appear to be good news for those industry professionals who advocate for population densification through such planning and design paradigms as Smart Growth and New Urbanism as the definitive sustainable development solution set.
Not so fast, Costello says. An admitted urbanite himself, he strongly suggests that such arguments predicting the demise of suburbia are misguided. ”As in the downturn following the Internet boom,” he states, “[T]here is fear mongering out there today suggesting that suburbs are no longer viable; investors should discount such talk.”
Costello argues that there are fundamental reasons why the suburbs will continue to thrive – reasons more powerful than the government regulatory forces driving against them – the forces of marketplace supply and demand.
- Housing prices in controlled urban environments will continue to rise significantly as demand increases.
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Families with children want more space, and most families cannot afford homes with yards in metropolitan areas.
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Most of the old subway and light-rail infrastructure is inadequate to support the transportation needs of the populace – offsetting projected reductions, and perhaps increasing the transportation infrastructure investment requirements.
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Automobile technology allows for freedom and mobility – a strong market demand.
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High energy costs - assuming car manufactures continue their current dependence on gasoline – may begin to shift the patterns of demand in suburban submarkets but would not eliminate demand. The odds that the auto industry responds with high-efficiency vehicles, and even move beyond petroleum in coming years, is very high.
- Dispersed populations allow lower housing and land prices for a given square footage.
And what about the argument that the “creative class” will not want to live in dispersed locations? Historical facts, Costello says, indicate otherwise.
Some cities that had attracted an eclectic mix of workers in the late 1990s and 2000s saw strong patterns of growth during the Internet boom. Others though, with the more vanilla features typical of low-density sprawl, posted even stronger growth—markets such as Austin, San Jose, Dallas and the peninsula market in San Francisco were leaders in the fastest growing areas of technology.
The stereotype of the creative class as some bohemian urban hipster is simply not the reality, he argues. To generalize about features that are attractive to workers like Costello and assume that the same patterns must exist everywhere is a mistake. The simple reality is that some young workers will want to live in densely packed cities…and some will not.
At SLDI, we strongly advocate for the concepts of Smart Growth and New Urbanism in those situations where they offer a sustainable solution from the triple-bottom-line perspective. However, this article makes a compelling case that it is not the only solution demanded in the marketplace. Imposing the will of the minority in the marketplace is, always has been, and always will be fundamentally unsustainable. Time and again, the market simply circumvents such regulation to get what it demands. And when it does, it too often exhacerbates that which has been hoped to eliminate. After more than 30 years of promotion and government regulation favoring such planning philosophies, solutions providing the greatest degrees of privacy, mobility, safety and space remain the living choice of the overwhelming majority of Americans.
Rather than changing demand through regulation – a mind-set that has been failing as long as it has been attempted, we need offer sustainable solutions to market demands. Civilization will continue to demand both urban and suburban living options - and I have no doubt whatsoever that our industry possesses the creative genius to deliver both of them in a truly sustainable fashion.
Filed under: People, Philosophy, Planet, Politics, Profit, Research, Tony Wernke Posts, Uncategorized on February 18th, 2009
Tony,
These are good points and I’m sure that Rick Harrison, author of the SLDI published book Prefurbia, will chime in with his thoughts as well.
I just want to reiterate some thoughts that I first published in the August 2008 SLDI Newsletter (http://www.sldi.org/newService/SLDIAugust2008.html) about the realization that market demand for the suburban lifestyle is not likely to reverse –
“While maintaining that we need to build places for people to live that minimize the impact on the ecosphere, Builder (Magazine) now admits that 92 percent of growth since 2000 has occurred in the suburbs, and an increasing number of jobs are migrating outside city limits.”
The admission that sustainable land development is essential, and that the suburban lifestyle will continue to be popular, is a healthy evolution of thought in the industry. SLDI salutes the efforts all contributing stakeholder groups and we will continue to promote and enable sustainable land development – whether urban or suburban.
Terry Mock
SLDI Executive Director
A few points to consider:
1. Will high energy prices destroy the suburbs?
In a short time, electric cars such as the Volt, will revolutionize efficiency for personal transportation. I have the first order for a Volt in Minnesota. Early reports say the Volt will be rated 100 MPG by the EPA. With a cost of only $1.50 of electricity for the first 40 miles driven, it makes the energy cost go out the window as an issue for future vehicles. The Volt charges in 6 hours, so on a work day one could get an 80 mile range before the gas motor kicks in! By 2015, even performance cars will get mileage that would compare to a Prius today. Suburbia’s naysayers and doomsayers ignore the eventuality that the Auto industry will step up to the plate and provide more efficient vehicles. Even if fuel goes to $6.00 a gallon and a suburban SUV in 2025 only gets 30 MPG, a 20 mile commute would cost less than $8.00 a day. And what about the newer, more efficient heating and cooling systems installed in that brand new suburban home? The cost would be far less than the old urban home, unless of course, one would want to invest upwards of $100,000 to gut and refurbish an old home to match the efficiency of a new home. Then there’s the probability that the urban resident most likely will not be able to walk to work, and will prefer for convenience, to drive as opposed to taking public transportation. So getting to work and back will cost something even if in close proximity to work.
A new home in the suburbs might not trump an old urban home if one drives a 8 MPG H1 Hummer, but that situation is rare. My son has a large SUV, a GMC Arcadia that gets 25 MPG even with all-wheel drive, and holds 9 passengers – imagine what efficiency autos will have in the near future! Does selling one’s suburban home to save $8.00 a day, just to have a home that uses possibly twice that in electricity and heating-cooling costs really make sense?
2. Urban Home issues:
No home built before 1980 is energy efficient – and older ones are worse. To refurbish an existing old home would only make sense if the neighborhood continues to retain value, and warrants investment. For example, some urban areas are well kept up, but many are not. Assuming a neighborhood has held its value, the initial purchase price of an existing urban home would be very high; thus a tear down would be too expensive, and refurbishing it would make more economic sense. To create a home that would be as energy efficient as a new suburban home with better insulation and Energy Star appliances, would (as stated earlier) most likely be a $100,000+ proposition.
Unless one was wealthy, it’s unlikely that the improvements would be a cash deal. Few take into consideration financing costs when comparing economic payback. The investment, when interest is considered, makes new construction look more appealing.
That brings us to the tear-down. Buying an improved property just to tear down a home and start over in some rare cases makes sense.
But let’s take a ‘cheap –to-buy’ home in an urban area. It’s unlikely that the urban area is a vibrant well kept area; after all, you bought it pretty darn cheap to warrant tearing it down to start over. Will that home maintain its value when compared to the condition of the surrounding neighborhood? Recently a builder attempted to sell a (tear-down) new construction $1.2 million Green Certified Home about a mile east of our urban home. It took a year to sell, and the price dropped $250,000. The neighboring homes were old, small, unattractive, and in poor shape.
We recently built a dual certified home (MNGreenstar and NAHB Green) on a vacant lot in a first ring suburb, St Louis Park, (considered a built-up urban area), 3 miles from downtown Minneapolis. Our 1936 Cape Cod home last year had a January gas bill over $500 (the coldest month of the year). The old home had about 2,200 finished square feet (300 of that is basement). Our new home has a HERS rating of 59, and it’s 3,600 sq.ft. cost only $200 to heat in the last 30 days in January. This January was a lot colder than last January. Per square foot the 1936 home cost 23 cents to heat and the 2008 home cost 5 cents to heat.
3. Mass Transportation: Throw billions to light rail! Does that make sense? Why not high speed rail, instead of what-should-be-obsolete light rail, that requires the destruction of everything in its path to get the right-of-ways to build it? We went to the moon in 1969; we should at least be able to build an elevated monorail system hovering above right-of-ways that we already have!
Two weeks ago I took the “EL” from O’Hare to downtown Chicago, thinking it would beat the 8:00 AM traffic. For just $2.25, I thought I was being real smart, avoiding all the traffic. Getting on the EL at O’Hare, I was the only person on board, and was sitting on very uncomfortable fiberglass seats. By the second (of 15) stops, the train was packed. At each stop more people sardined on board – each stop had people jammed on the platforms waiting to get a ride. At each stop, the conductor asked people to use the next train – but instead, they tried to jam more in, delaying the ability to take off. It took an hour to get downtown, in the most compressed environment I ever experienced. Is this progress? Nah…
Progress would be an overhead system with a train achieving 100 MPH between short stops, and twice that between long stops, in a comfortable setting. We went to the moon 40 years ago, we can build cruise ships as big as cities, we routinely get on a plane with hundreds of other people and can cruise at 40,000 feet at 500 MPH across the country for $200 bucks. Yet the best we can do is encourage investment in a hideously outdated 35 MPH light rail? There seems to be no municipal incentive to improve. I’d wager if the cities buying rail specified design and performance criteria, or no contracts would ensue, you would see huge changes. But why change when cities don’t question train technology from 1850?
4. A re-invented suburban future: Prefurbia! Many in charge of urban economic stability might rather see the suburbs die, rather than to repair them. We can fix the ills of the suburbs. For those that wish to learn more, the ‘How’ is detailed in Prefurbia, our planning firm’s recently introduced book.
More about Prefurbia, recently published in EcoWorld:
http://www.ecoworld.com/blog/editor/guest/2009/02/12/green-neighborhood-design-ala-prefurbia/
Rick Harrison
President – Rick Harrison Site Design Studio
8832 7th Ave N
Minneapolis, MN 55427
P: 763-595-0055 F: 763-595-0080
Web: http://www.rhsdplanning.com
Link to our book Prefurbia: http://www.prefurbia.com
If you ever want to hear a reader’s feedback
, I rate this post for four from five. Detailed info, but I just have to go to google to find the missed bits. Thanks, anyway!