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You think the suburban craze is over? Not so fast

Despite faster price growth in cities, the suburbs are where people are still moving.

People are increasingly shunning suburbs — or not automatically choosing them — and moving to the city or to more city-like environments, like the West End.
Excelsior Group

The suburbs are so over.

That ‘s been the news coming in from a number of scholars. Among them are Alan Ehrenhalt, whose book “The Great Inversion” (which I wrote about last year), posited that the great outward migration of the affluent from cities was coming to an end. That was followed by a study from demographer William Frey of the Brookings Institution, who analyzed Census data and found that cities were growing faster than suburbs. (Also wrote about that — I tell you just so you know that you haven’t been left out of the loop.)

What’s causing the change?

One: People are increasingly shunning suburbs — or not automatically choosing them — and moving to the city or to more city-like environments, like the West End or Excelsior on Grand in St. Louis Park, to be near stores, restaurants and the like.

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Two: The X, Y and Millennial generations — adults under age 40 — having witnessed the collapse of the housing market, view homeownership as a financial risk they don’t want to jump into. So they’re staying in city apartments. (I would add that many of them are so weighed down by student loans that they are understandably reluctant to take on more debt.)

Three: Commuting to far-flung suburbs where housing is affordable has become so burdensome that many people feel that they barely have time to enjoy their big houses and back yards when they finally arrive there after work.  

Different take

Just in is a vastly different take on the cities-rising-from-the-ashes theory from Jed Kolko, chief economist at Trulia, the real estate listing website. Kolko wanted to find out which areas, cities or suburbs, were growing and where housing markets were recovering faster. Interestingly, he found that, well, maybe the suburbs aren’t so over after all.

To answer his own question, he tossed into the analytic blender last year’s gains in median price per square foot among non-foreclosure properties listed on Trulia. To that he added population growth in the year ending in mid-June, based on the U.S. Postal Service’s count of occupied households in each ZIP code. And, he categorized neighborhoods according to the type of housing they had, regardless of their borders. So, those with townhomes, apartments and condos went into the urban category, while areas with predominantly detached, single-family houses were classed as suburban.

He put it all together and got a mixed picture. Urban neighborhoods had faster price growth in the past year, while suburban neighborhoods had higher population growth. The median asking price per square foot was up 11.3 percent in urban neighborhoods, versus 10.2 percent in suburban neighborhoods. (The overall national increase, including urban and suburban neighborhoods, was 10.5 percent.)

But despite faster price growth in cities, the suburbs are where people are still moving: suburban neighborhoods had faster population growth than urban neighborhoods did, 0.56 percent versus 0.31 percent.

Now, you’d think that if more people were moving to the suburbs, they would push up housing prices. But Kolko argues that adding new housing in low-density suburbs is cheaper and easier than in crowded cities; so prices in outlying areas tend to rise more slowly. I would also theorize that even though Kolko excluded foreclosures from his study, there are more of them in suburbs, and their very existence puts downward pressure on prices.

Then Kolko took a closer look at the housing price data from the 20 major metros tracked in the S&P/Case-Shiller Index. And they show — drum roll — that in the Twin Cities people still have a pretty strong preference for traditional single-family suburban housing. Let that be a warning to developers who are putting up rental buildings downtown as fast as their backhoes, cranes and hardhats will let them.

U.S. Metro*

Urban home price change, year-over-year

Suburban home price change, year-over-Year

Difference: urban minus suburban

Detroit

28.8%

22.0%

6.8%

Phoenix

27.2%

22.1%

5.1%

Miami

18.1%

13.1%

5.0%

New York

7.3%

2.7%

4.6%

Boston

10.1%

6.1%

4.0%

Las Vegas

33.8%

30.0%

3.8%

San Diego

20.8%

17.3%

3.5%

Los Angeles

20.6%

17.6%

3.0%

Cleveland

7.8%

5.0%

2.8%

Tampa

15.1%

12.4%

2.7%

Portland

15.7%

13.1%

2.5%

Chicago

8.8%

6.6%

2.2%

Atlanta

20.2%

18.1%

2.1%

Washington DC

7.7%

6.8%

0.9%

Denver

11.6%

11.1%

0.6%

Charlotte

9.5%

9.0%

0.5%

Seattle

12.8%

13.2%

-0.5%

Dallas

9.3%

11.2%

-2.0%

San Francisco

18.9%

21.4%

-2.5%

Minneapolis

9.1%

11.7%

-2.7%

Source: Trulia.com

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Of course, what’s bad for developers could be a bonanza for renters. In Washington, D.C., for example, which has also undergone a building boom in rental apartments downtown, about a third are sitting empty, according Erica Champion, an analyst with CoStar. Landlords are luring new renters by offering them an average of 18 days of free rent. After thousands more new units are expected to come on line in the next year, she predicts that “renters will be likely signing leases that offer a full week more of free rent than currently given today.”

Kolko notes that neighborhoods with high-rise buildings of more than 50 units enjoyed the biggest price gains in the last year, about 11.9 percent over last year, compared with the average urban increase of 11.3 percent. Ethnically diverse city nabes did even better, racking up increases of 14.3 percent.

Hottest price increase

But hottest of all in price appreciation are what Kolko calls “gayborhoods.” He writes: “Neighborhoods where same-sex male couples account for more than 1 percent of all households (that’s three times the national average) had price increases, on average, of 13.8 percent. In neighborhoods where same-sex female couples account for more than 1 percent of all households, prices increased by 16.5 percent — more than one-and-a-half times the national increase.”

Whether gay people simply choose neighborhoods that are already desirable and expensive or whether their presence boosts residential values remains an open question. As the academics would say, “More research is needed.”