Back in the 1990s, new urbanism and smart-growth movements began advocating for alternatives to urban sprawl, promoting a cross-hatch of ideas from the simple, such as redeveloping along mass transit stops; to the more ephemeral, such as strengthening downtowns to make them more attractive to young, knowledge-based workers.
Indeed, new urbanism advocates seemed to be ahead of the curve as Generation X entered the workplace and began taking up residences closer to the downtown core. Then came the great real estate bubble, and the trend line ground to a halt like a tram approaching a congested intersection.
The availability of cheap financing, which pushed more people into single-family homes, spurred builders to create huge new developments further and further out into the exurbs where raw land was plentiful and cheap. When the real estate bubble deflated beginning in 2007, many of those long-distance developments were the first to suffer.
First, the customers disappeared and then the financing evaporated. Today, many unfinished developments are part ghost towns, unprotected to the elements and vandals.
Sure, those homes can be bought cheaply today, but these are not good, long-term investments. The new urbanists were dead on in their thinking 20 years ago — the trend line is a return to population centers and mass transit nodes.
According to a recent Wall Street Journal report, the U.S. Census data shows central-city populations in U.S. metropolitan areas with more than 1 million people grew at annual rate of 0.97 percent between July 2007 and July 2008 — the highest rate in many years.
"Households are growing in most cities," observes John Norquist, president and chief executive officer of Chicago-based Congress for New Urbanism and past mayor of Milwaukee, Wis., a job he held for 15 years. "The population of bigger cities may still be declining or stable, but that’s because the households, which are increasing in number, are getting smaller. A single person or two adults live in a residence instead of a large family."
Now there are all sorts of touchy-feely reasons for this reverse migration trend: young workers want to be where the action is, not in a remote suburb; companies are following the movement of knowledge-based workers to be where they are; and retirees and near-retirees have rediscovered the joys of living urban.
More importantly, there are hard economic reasons for this trend, the key one being the escalating cost of commuting. Despite 30 years of rising gasoline prices, it was still relatively cheap for Americans to fill up at the pump compared to folks in most other countries. Then in 2008 the oil market hyperventilated and the prices shot up almost threefold to more than $140 a barrel. What used to cost us $2 a gallon at the pump suddenly cost $4 a gallon at mid-year 2008. …CONTINUED
Urbanists, new or otherwise, strongly suggest we hit the tipping point: the price of gasoline finally reached an expense level that it crossed into becoming a determining factor as to where Americans decide to live, i.e., how far one commutes between home and job every day. The price of gasoline did retreat over the past year, but has started climbing again and no one really expects gasoline to be a cheap fuel source ever again.
As it turned out, a high percentage of the people who were lured out to the exurbs by cheap housing and cheap financing are those who had lower-paying jobs at places far, far away.
"If you look at the foreclosure rate in this country, the majority of the foreclosures were directly related to vehicle miles traveled," notes Donald Monti, CEO of Renaissance Downtowns LLC in Plainview, N.Y. "The further the distance from the place of employment translates into a dramatic increase in the rates of foreclosure in residential properties."
To which Monti adds: "This is probably the No. 1 factor why we feel downtown revitalization and living nearer to one’s work is the answer."
Monti likes to call himself a "recovered developer," meaning at one time he was one of those who built developments on the fringes of the suburbs. He has since reinvented himself, working to revitalize downtowns.
What makes Monti’s company interesting is that it works solely with third- and fourth-tier cities with populations from 30,000 to 150,000 that already have some form of mass transit, generally a rail line.
"People want to live downtown. They don’t want to drive," he exclaims. "They want a ‘cool’ downtown where they can shop, live, play, learn at educational institutions, and if possible … work. But, it’s hard to reinvigorate a downtown without transit."
So what’s going to happen to all those homes built since 2004 on the suburban fringe? In 2008 I asked that question of Christopher Leinberger, director of the University of Michigan’s real estate graduate studies and a visiting fellow at the Brookings Institution in Washington, D.C.
His response: "Much of the product built on the fringes in the first decade of this century will have a hard time finding buyers. Obviously, some home products will do well, but most homeowners will get clobbered."
Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."
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