Suburbs were supposed to be over. Sprawl became a dirty word. Peripheries were unsustainable. Uncool.
It appears, though, that suburbs are where it’s happening. They may even have a future. This is important right now for home builders, because the big question they need to come to some sort of answer on sooner than later is this: Is “path of growth” back? If so, is there a smarter way to approach the notion of “path of growth” investment than during the irrationally exuberant 2005-to-2007 period in housing?
First, researchers at Zillow presented evidence that debunks a commonly-held myth that our new generation of young adults would reject suburban life. Fact is, a share of them do just that. Maybe a percentage of this Millennial group will continue to favor urban centers, non-traditional households, new ways of finding community.
Still, 50% of the cohort, which projects to 38 million-plus as you play out the generation across the next 10 years, appears to be drawn to suburban living. It’s no wonder, then, that MIT Center for Advanced Urbanism gives suburbs a thumbs up.
“We are living in a global suburban age… While statistics demonstrate that the amount of the world population in metropolitan areas is rapidly increasing, rarely is it understood that the bulk of this growth occurs in the suburbanized peripheries of cities. Domestically, over 69% of all U.S. residents live in suburban areas; internationally, many other developed countries are predominately suburban, while many developing countries are rapidly suburbanizing as well.”
Closer to home during a week whose economic focus-point and gravitational pull are toward tomorrow’s release from the Commerce Department of jobs and unemployment data for the month of February, is this Indeed.com economist Jed Kolko look at the geography of jobs and wage growth.
Kolko’s key takeaway is that the jobs recovery is far from, if you’ll pardon the expression, democratic. The granularity of Kolko’s analysis exposes a few really important implications for home builders, who are in a tricky moment of the cycle with respect to what happens next in land acquisition and development. Affirming the broad-stroke good news on suburbs, Kolko writes:
Job growth from the third quarter of 2015 to the third quarter of 2016 was fastest in the lower-density suburbs of large metropolitan areas, with populations over one million. In those counties, employment grew 2.2%, slightly ahead of growth in higher-density suburban counties (2.1%) and in urban counties (2.0%) of large metros. Despite the publicized moves of some jobs to downtowns, job growth is slightly faster in the more suburban portions of large metros. Similarly, population is now growing faster in suburban than urban areas, consistent with the long-term trend.
The point Kolko keeps emphasizing is that all metros are not created economically equal, and as often as not, fast job growth and accelerated rates of wage and income growth are almost never tied together geographically.
Yet even among large metros, there are big differences in economic growth. Job growth between the third quarters of 2015 and 2016 was fastest in the Deltona-Daytona Beach-Ormond Beach, FL, metro area. Four of the six large metros with the fastest job growth were in Florida; the rest of the top ten were in the Mountain states and elsewhere in the South.
Wage growth was also fastest in the South and West, but one difference is that three California metros — San Francisco – Oakland, San Jose, and Riverside – San Bernardino — were among those with the biggest wage gains but not the largest job gains. In the Bay Area in particular, a shortage of housing holds back job growth while firms continue to pay more to hire those who can afford to live there.
Jobs, wages, and economic growth, in downtown urban areas and their suburban peripheries have always been the go-to proxy for present and future housing demand. To listen to National Association of Realtors chief economist Lawrence Yun, a combination of pent-up and organic inflowing demand will boost home buying and selling activity:
“With a population gain of 27 million over the next decade, existing home sales should be hitting approximately 6 million a year just from demographic forces–even if mortgage rates should go up to 7%.”
Most builders look at the next 24 to 30 months and feel pretty solid that–if they execute–their prior capital investments match up to a good 2017 and 2018. Where they’re anxious, mostly, is around that next corner. There’s too much uncertainty now to predict how the next wave of capital investment should value the 2019 pipeline and beyond.
What’s coming clear, though, is that doubt around structural issues like “suburbs vs. cities” and “whether millennials will opt for homeownership” seems to be giving way to evidence that the farther we get from The Great Recession, the more normal things begin to look as far as household formations, family formations, and housing preferences.
The good news here is that suburbs can and do exert compelling appeal to young adults. The tough news is that there’s a lot of nuance beneath that generalization. Nuance means that there will be losses as well as wins among those who make the bets on when, where, and for how much these young adults will pull the trigger on homeownership.
So, back to the question, should builders–particularly as a new administration gears up for a massive push on economic growth–invest in path-of-growth opportunity in land and community development, banking on infrastructure, lower regulatory hurdles, and proliferating jobs and households?
Given the choice between playing on a level playing field, or one tilted in your favor–thanks to tools and data that can help you understand the nuances in which submarket suburbs best match up to your home and community product lines and processes–which would you go for?
John McManus / Builder / March 13, 2017