The face of American society is changing and with it, the real estate market. The dream of owning a home in the suburbs with a spacious backyard and garden in the front is being lost on millennials as they swap cars for public transit, bikes, and their own two feet. Cities offer a lifestyle that provides opportunity and convenience rather than going through the motions of starting a family on a cul-de-sac. This may have been the case for their parents, the baby boomers, but It’s a trend that is sweeping across the U.S. because they need to adapt to an economy that is vastly different than what we were used to seeing in the 20th century. Urban centers are home to America’s most educated and wealthiest, as well as living in the most socially equitable regions of the country. It’s a phenomenon not unique to stateside, but a global trend that is driving people away from rural/suburban life with a nuclear family to compact living; this has led to the shift of just over half of the world’s population living in cities for the first time in human history.
Young people expect to pay a premium to live in the city, but it’s a cost they view as a necessary expense because of the demand, however the payoff is economic equity. Unexpectedly, cities are also attracting baby boomers looking to down size and drawn by the same quality of life that motivates millennials. This is why it’s no surprise that the perennial most walkable cities of New York, Washington D.C., Seattle and Boston also own the highest GDP in the nation, they also have a lower mortality rate because of access to better doctors and state-of-the-art medical facilities. Owning urban property whether it be a condo or a townhouse, is a sound investment because the demand will only increase as people embrace interconnectivity, greener living and are having fewer children or none at all.
Convenience and Necessity
Home buyers no longer care so much about size when they’re living in the city because their biggest pull factors boil down to three factors: employment opportunities, entertainment and better living standards.
Take Brooklyn, N.Y. for example, a borough that’s home to North Williamsburg and Boerum Hill, two neighborhoods that once had the highest crime rates in all the five boroughs now has some of the wealthiest urbanites in the tri-state area. These neighborhoods are also seeing a burgeoning upper middle class of families thanks to gentrification, making Brooklyn practically unrecognizable from what the borough looked like in the 1980s. Now the average home price is almost $800,000. Of course these prices look incredibly inflated to someone from rural Wyoming, but the lucrative employment opportunities that urban centers have been providing since markets began to stabilize after the 2008 Recession have created a quality of living that is the envy those in small cities.
New York, Seattle, and Boston are three of the most innovative cities in the country and every great city must have reliable and safe public transit. Most new residents to a city like New York with one of the largest subway networks in the world, can save on average $10,000 annually by swapping their car for a metropass. Public transit is no longer seen as the ‘poor man’s’ mode of transportation as it is often stereotyped, but actually the lifeblood of modern cities. In fact, 12 percent of transit riders are traveling to schools and almost 60 percent are going to work. Cities that invest in public transit reduce commuting times, cut operating and maintenance costs for highways, and are a green solution to the smog-chocked cities of the last 100 years. An efficient public transportation system also promotes high-density urban development, which reduces the economic and environmental costs of endless sprawl in the suburbs.
An intricate and efficient public transit system makes a city optimal for walking and that’s why premiums are as high as 90 percent higher for office space, 71 percent for retail, and 66 percent for multifamily rental.
A 2012 study by the University of Technology Sydney on the impact rail investment has on housing prices in northwest Sydney compared housing prices before and after the opening of a rail line. The study found there was an average $58,460 increase in unit prices after the opening of the rail link, but it also shows smaller price changes for homes further away from the rail station at a rate change of $17,556 lower for every kilometer away from a new public transit station. Another interesting finding was that the more bathrooms a dwelling had, the longer it would stay on the market (at an annual loss of $7339.62 USD) and smaller homes sold for a premium because of their proximity to a public transit station. This indicates accessibility is the real luxury in cities, while size of the home is no longer for status, but exclusively dependent on the size of a family.
This is because both millennials and baby boomers value public transit for cleaner air, promotion of physical activity and avoiding the excessive stress of commuting by car to work.
Millennials
Millennials are the most educated generation in history and enjoy the lifestyle that comes with living in the city compared to suburbs, which is reinventing the American Dream. However, it’s difficult to determine which came first: that millennials moved to major cities because of its walkability or if the city became walkable after they began moving there.
Enrico Moretti, an economist at the University of California, Berkeley, and author of “The Geography of Jobs,” says no matter how walkability came to be, their draw on millennials are spurring the economies of these cities.
”For every college graduate who takes a job in an innovation industry, he found, five additional jobs are eventually created in that city, such as for waiters, carpenters, doctors, architects and teachers,” Moretti told the New York Times. ““It’s a type of growth that feeds on itself — the more young workers you have, the more companies are interested in locating their operations in that area and the more young people are going to move there.”
For cities that did not historically have a high-density urban population such as Phoenix and Cleveland, are finding themselves playing catch-up with New York so their local economy and housing market do not collapse due millennial preference for accessible and technologically advanced urban centers.
Christopher Leinberger, an author and professor at the George Washington University School of Business, says millennials make up the majority of the wave of migration to cities because they know urban centers offer opportunities for success, but then rarely move far away after establishing themselves.
"One of the things we are seeing evidence of is that those millennials that are finally settling down are the ones moving to urbanizing suburbs," Leinberger told the BBC. "They want the better schools in a walkable urban place."
Yes millennials moving to cities is great for economy, but they are not buying homes as much as previous generations. This is due to number of factors because of their financial reality: after effects of the recession, rising real estate costs, historically high student debt, and an ultra-competitive job market. However, there are still many millennials who want to reap the benefits of owning property. Millennials, the largest generation in American history, accounted for 35 percent of all homes sold in the U.S. last year. With 25 as the median age for millennials, stats indicate they do not want to be burden themselves with high rent and would rather delay their entrance into the real estate market until they are able to progress in their careers.
Realtors, urban planners, developers and municipal governments rely on when and where millennials live in cities, but despite the new urban American Dream, federal policy is surprisingly not making it easy. The decades old preference towards single-family homes has led to policies that encourage suburban sprawl rather than urban density. This is because 81 percent of federal loans go towards single-family homes and discourage mid-level, multi-family projects needed in many low-income urban areas.
Changes must be made because across all demographics, fewer people than ever want to live in the suburbs, according to the American Planning Association. 40 percent of millennials live in an
auto-dependent neighborhood as of 2016, however only 10 percent see themselves living in this type of neighborhood in the future.
Baby Boomers
Baby boomers grew up in the suburbs and most believed they would raise their families there as well then retire to warmer, cheaper living in Arizona or Florida. However, that’s just not the case as they too are migrating back to cities for many of the same conveniences and quality of life millennials are seeking. Baby boomers (born between 1946 and 1964) are the largest and wealthiest generation to ever retire, a fact that realtors and developers are well aware of.
Businesses and condo buildings have begun catering to the older demographic by opening restaurants that suit their tastes and around-the-clock concierge service for their living needs. Boomers are not flocking to the city en masse like millennials, but there an estimated 74.9 million baby boomers in the U.S. and even if just a small percentage move to cities, it makes them a lucrative target demographic.
From July 2013 to June 2014, only 11 percent of buyers aged 50 to 59 closed on homes in urban areas, but a year later that percentage increased to 13 percent, according to the National Association of Realtors.
There are several pull factors for boomers to cities, such as wanting to downsize, access to cheap transportation, and some of the best medical care in the country. In fact, the New York-Northern New Jersey-Long Island metro area is considered one of the best places to retire.
“If you can afford to live in Manhattan, it’s a great place to be older,” says Jonathan Smoke, realtor.com‘s chief economist. “You’re not shoveling snow. You can walk or get transportation to any doctor or service you need. And you have a friendly doorman that pays attention to you and acts as an additional caretaker.”
Living in the suburbs is a lot of work. There is the responsibility of maintaining your home and yard work that is just not how many boomers want to enjoy their retirement. Boomers are willing to pay $700,000 and to spend their twilight in cities, with no shortage boutiques and cultural centers popping up to attract their business. However, the influx of wealthy boomers is driving up the price of living and inadvertently driving out millennials who do not have as deep of pockets.
Regardless of age, city living is a universal desire with upwards of two billion people expected to move to urban areas in the coming decades. The convenience of being able to walk to work, school, entertainment and services are not only providing a higher quality of life, but also creating centers of innovation that can be studied to understand how to effectively plan cities for the next 100 years.
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