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articles about “Cities vs. Suburbs

Urban Headwinds, Suburban Tailwinds

Although home prices are rising faster in urban neighborhoods, population is growing faster in suburban neighborhoods. Consumer preferences and the aging of the population are tailwinds for suburban growth; so are falling oil prices if they stay low long-term.

Jed Kolko, Chief Economist
January 22, 2015

How fast have cities and suburbs grown recently? During last decade’s housing bubble, suburbs and rural areas grew much faster than cities. But briefly, early in the housing recovery, it looked like the long suburbanization of America might go into reverse. For a moment in 2011, urban counties grew faster than suburban and rural counties. Since then, old patterns have returned. Suburbs are now gaining population faster than urban neighborhoods, even though home prices are rising faster in cities than in suburbs. And the trend seems likely to continue. Trulia’s latest consumer survey and projected demographic shifts point to future headwinds for urban growth.

To compare cities and suburbs, we classify individual neighborhoods as urban or suburban based on whether or not most households live in detached single-family homes (see note on methods and data sources). This definition better reflects how residents describe their neighborhoods than do official city boundaries. That’s because many neighborhoods within big-city limits consist overwhelmingly of single-family homes and feel more suburban than urban.

Prices Rising Faster in Cities, but Population Growing Faster in Suburbs

In the recovery, the home-price rebound has been stronger in urban neighborhoods. Most of the overbuilding during last decade’s bubble involved single-family suburban homes, and the single-family vacancy rate remains elevated. Comparing urban and suburban neighborhoods in the 100 largest metros over the past four years, urban home prices have consistently risen faster, or fallen less, than prices in suburbs. And, for the year 2014, the urban median asking price per square foot rose 8.1% versus a 5.7% gain in suburban neighborhoods.

HomePriceGrowth

However, during most of this period, suburban population growth has been faster than urban growth. In 2014, suburbs grew 0.96% and cities 0.85%, according to Postal Service data on occupied homes receiving mail. That’s not a huge difference, but it continues the trend of suburbs outpacing urban areas.

PopulationGrowth

How can prices rise faster in urban neighborhoods even as suburbs lead in population growth? One reason is that most new construction takes place outside urban neighborhoods. Cities have less open land, and often more onerous regulations limiting new construction. It’s true that in 2014 multiunit buildings—typically located in urban neighborhoods—accounted for the highest share of overall construction since 1973. Still, in urban neighborhoods, fewer new units are built relative to the size of the housing stock. Limited construction holds back urban population growth and worsens urban affordability, even when—as rising prices show—housing demand in cities is strong. But what does the future hold?

Dreaming of the Suburbs and Beyond

In November, Trulia asked more than 2,000 American adults whether they lived in an urban, suburban, or rural area, and where they wanted to live in five years. We didn’t define urban, suburban, and rural, but instead left them open to interpretation. (See note.) Rural areas were the winner. Just 21% of respondents said they were rural residents, but 28% said they would like to be living in a rural area in five years.

LiveWantSurvey

Urban residents feel the tug of the suburbs. For every 10 suburbanites who said they wanted to live in an urban area in five years, 16 urban dwellers said they wished to live in the suburbs. Even among young adults aged 18-34— who are more likely to live in urban areas than older adults are—more wanted to move from city to suburbs than the other way around, though the sample size was small.

To put it another way: Urban residents were the least likely to want to live in a similar area in five years. Two-thirds (67%) of urbanites wanted to live in an urban area in five years, compared with 80% of suburbanites and 83% of rural residents who wanted to live in areas like where they were.

Urban living generally declines with age, which partly explains why people are less likely to want to live in cities in five years. But will the large millennial generation give urban areas a sustained boost? In other words, will the U.S. population’s changing age profile be a tailwind or headwind for cities?

The Demographic Urban Headwind

Today, urban neighborhoods are getting a demographic jolt. The largest segment of the big millennial group—folks in their early 20s—are entering the peak age for urban living. Some 26% of 22-24 year-olds live in urban neighborhoods, rising to 27% for 25-29 year-olds. Older people are far less likely to live in urban neighborhoods. Just 17% of the largest segment of baby boomers—those in their early 50s—live in such neighborhoods, a third lower than the share of early twentysomethings.

Comparing the 2009-2013 period with 2000, city living held up for people aged 25-44. Meanwhile, the share of adults 18-24 living in urban neighborhoods declined because they became more likely to live with their parents. But the most dramatic change in urban demographics concerned older adults. People age 45 and older were less likely to live in urban neighborhoods in 2009-2013 than in 2000. And the share of seniors in their 70s and early 80s living in urban neighborhoods fell more than 10 percent. In fact, for decades, seniors have become more likely to live in single-family homes. Increasingly, cities may be for the young. But that’s because oldsters are getting less urban, not because youngsters are getting more so.

AgeUrbanComparison

What then will happen as the two largest groups age—those in their early 20s and those in their early 50s? As millennials get older, many will follow a familiar path: They’ll partner up, have kids, and move to the suburbs. Urban living starts to decline after ages 25-29 and drops to its lowest level at ages 65-69. On the other hand, the baby boomer leading edge is nudging 70, when urban living starts to rise again. The return of older boomers to cities will offset some of the millennial suburban migration.

Nevertheless, the aging population is overall a slight headwind for cities. Suppose the propensity of each age group for urban living remains at 2009-2013 levels. In that case, over the next few decades, the changing age distribution projected by the Census Bureau would lead to a slow, but steady decline in the share of adults living in urban neighborhoods. To be sure, the decline will probably be small—around a tenth of a percentage point per decade. Still, it suggests that aging boomers returning to cities might not fill all the homes suburbanizing millennials leave behind.

What could boost urban growth? For starters, more construction in city neighborhoods. That would allow higher urban population growth, while slowing price increases. Also, higher energy prices would encourage people to live closer to work and in smaller homes. By the same token, the recent drop in oil prices, if sustained, would have the opposite effect, becoming yet another tailwind for suburbs and headwind for cities. Finally, cultural attitudes could shift in favor of renting and urban living. But is that likely? Today, the vast majority of young renters aspire to own. Homeownership remains core to the American Dream. The future of the suburbs looks bright.

Notes:

To compare “city” versus “suburb,” we classify neighborhoods as urban or suburban based on how dense or spread out the housing is, as we have done in previous Trulia Trends posts. Using Census data, we define urban neighborhoods as ZIP codes (technically, ZCTAs — ZIP Code Tabulation Areas) where a majority of the housing is apartments, attached townhouses, or other multi-unit buildings; suburban neighborhoods are those where a majority of the housing is single-family detached houses. We used this methodology rather than simply identifying the biggest city in a metro as “urban” and treating the rest of the metro as the “suburbs,” as other reports on cities-versus-suburbs often do. The problem with using city boundaries is that many neighborhoods outside of the biggest city are actually much more urban than some neighborhoods within a city’s boundary. For instance, our definition classifies Hoboken, NJ, Central Square in Cambridge, MA, and Santa Monica – which are all very dense – as urban neighborhoods, even though they’re outside the city boundaries of New York, Boston, and Los Angeles, respectively.

The urban vs. suburban comparisons of prices and population growth cover the 100 largest metros, with individual ZIP codes classified as urban or suburban. Price changes are year-end year-over-year changes in median asking price per square foot of homes listed on Trulia. Population changes are the year-end year-over-year change in the U.S. Postal Service’s count of addresses receiving mail, reported monthly by ZIP code.

The consumer data is based on a survey of 2,008 American adults conducted for Trulia on November 6-10, 2014, by Harris Interactive. Respondents were asked whether they lived in an urban, suburban, or rural area, without being provided a definition. Self-reported urban locations aligned better with our housing-stock-based definition of urban versus suburban than with official city boundaries, though race, for instance, had a statistically significant relationship with self-reported neighborhood urban classification, even after accounting for the housing stock, household density, and city population.

Data on urban residence by age group is based on the ZCTA population as reported in the 2000 decennial Census and the 2013 five-year American Community Survey, covering the years 2009–2013. Population projections by single year of age from 2014 to 2060 are also from the Census Bureau.

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Millennials Are Suburbanizing, While Big Cities Are Having a Baby Boom

Between 2012 and 2013, population growth for 20-34 year-olds was highest in Colorado Springs and San Antonio, while Austin and Raleigh were tops for 50-69 year-olds. But New York, Washington D.C., and Boston all had among the highest growth for 0-4 year-olds.

This morning the Census released its 2013 population estimates by age group for counties, which reveals which local areas are gaining or losing millennials, boomers, and other age groups. Earlier this year, the Census released 2013 population estimates for the overall population – not broken out by age group: at that time we pointed out that the most urban counties had slower population growth than the more suburban counties, even though the most urban counties were growing faster than they did during the housing bubble. (This post and this article explored the broad urban versus suburban trends.)

Today’s new data tell us whether key demographic groups – like millennials (20-34 year olds), boomers (50-69 year olds), and young kids (0-4 year-olds) – might be bucking the broader trend of more suburban counties growing faster than the most urban counties. To measure this, we use the same approach of dividing all U.S. counties into four quartiles based on their household density so that each quartile includes around one-fourth of the total population (see note on county definitions and age groups). Going from the highest to lowest density, the four categories correspond roughly to (1) big, dense cities; (2) big-city suburbs and lower-density cities; (3) lower-density suburbs and small cities; and (4) smaller towns and rural areas.

The punchline: millennial population growth in 2012-2013 in big, dense cities was outpaced by big-city suburbs and lower-density cities and even by lower-density suburbs and smaller cities. Boomer growth in big, dense cities also fell just short of growth in the big-city suburbs and lower-density cities. But the population of kids under the age of 5 grew fastest in big, dense cities. Let’s take a look at each of the age groups.

Millennials Not Flocking to Big Cities
From 2012 to 2013, population growth for millennials (20-34 year-olds) was highest outside big cities. The fastest growth was in the second quartile of counties ranked by density (big-city suburbs and lower-density cities). Furthermore, the third quartile (lower-density suburbs and smaller cities) edged out the top quartile (big, dense cities) for millennial population growth:

MillennialsPopGrowth

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Home Prices and Population Growth: Cities vs. Suburbs

From some angles, it looks like the housing recovery has brought an urban resurgence: for instance, the most urban counties are growing faster now than during the housing bubble, and many dense cities are having a boom in apartment construction. However, the most recent data show that asking prices in urban neighborhoods are rising only slightly faster than in the suburbs, and the suburbs actually have higher population growth.

 The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed (see note #1 below).

Asking Prices Continue to Rise as Spring House Hunting Season Begins
Despite declining investor purchases and more inventory coming onto the market, asking home prices continued to rise at the start of the spring housing season. Month-over-month, asking prices rose 1.2% nationally in March 2014, seasonally adjusted. Quarter-over-quarter, asking prices rose 2.9% in March 2014, seasonally adjusted, reflecting three straight months of solid month-over-month gains.

Year-over-year, asking prices are up 10% nationally and up in 97 of the 100 largest metros. Albany, NY, Hartford, CT, and New Haven, CT, are the only three large metros where prices fell year-over-year, albeit slightly.

TruliaPriceMonitor_LineChart_Mar2014

March 2014 Trulia Price Monitor Summary

 

% change in asking prices

# of 100 largest metros with asking-price increases

% change in asking prices, excluding foreclosures

Month-over-month,
seasonally adjusted

1.2%

Not reported

1.1%

Quarter-over-quarter,
seasonally adjusted

2.9%

97

2.8%

Year-over-year

10.0%

97

9.5%

*Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

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Home Prices Rising Faster in Cities than in the Suburbs – Most of All in Gayborhoods

The suburbs may have faster population growth, but urban neighborhoods have faster home-price growth nationally and in 16 of the 20 Case-Shiller metros. Furthermore, home prices are climbing most steeply in high-rise neighborhoods and areas with large gay and lesbian populations.

Home prices have been climbing nationally for more than a year. The Trulia Price Monitor, Case-Shiller, and other price indexes show price gains for nearly all large metro areas. But within a metro, the city and the suburbs are often totally different housing markets.  In last decade’s housing bubble and bust, most of the overbuilding and foreclosures happened in the suburbs and outlying areas, but many downtowns are dotted with vacant buildings or even vacant blocks. Which areas are seeing a stronger recovery – cities or suburbs?

To answer this, we looked at (1) price gains, based on the change in median price per square foot among all non-foreclosure homes for sale on Trulia, and (2) population growth, based on the U.S. Postal Service’s count of occupied households in each ZIP code. Both measures are year-over-year, with prices through the end of May 2013 and population through mid-June 2013. We classify urban and suburban neighborhoods based on the kind of housing they have – urban neighborhoods are mostly condos, apartments, and townhouses, while suburbs have mostly detached, single-family homes – which we think is more accurate than using big-city boundaries (see note).

Urban Neighborhoods Have Stronger Price Recovery, but Slower Population Growth
Here’s the punch line: 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% in urban neighborhoods, versus 10.2% in suburban neighborhoods.  (The overall national increase, including urban and suburban neighborhoods, was 10.5%.) But despite faster price growth in cities, the suburbs are where people are moving: suburban neighborhoods had faster population growth than urban neighborhoods did, 0.56% versus 0.31%.

Change in home prices, Y-o-Y Change in population, Y-o-Y
Urban neighborhoods

11.3%

0.31%

Suburban neighborhoods

10.2%

0.56%

But shouldn’t price gains and population growth go hand-in-hand? Not necessarily: there’s more room to build new housing for a growing population in sprawling suburbs than in dense urban areas, so suburbs can more easily accommodate growth with new construction. In contrast, the more people want to live in dense, urban neighborhoods, the more they bid up the price of existing homes. Even with the recent rebound in construction of urban multifamily buildings, most new housing is still in the suburbs.

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Even After the Housing Bust, Americans Still Love the Suburbs

Despite the recent growth of big city downtowns, there is no widespread shift toward dense, urban living. Instead, the long term suburbanization of America continues.

Jed Kolko, Chief Economist
October 9, 2012

For decades, Americans have chosen to live in suburbs rather than in cities. Suburban growth has outpaced urban growth, and many big cities have even lost population. But in recent years, some experts have said it’s time for cities to make a comeback. Why? Urban crime rates have fallen; many baby boomers want to live near restaurants, shops, and all the other good things that cities offer; and the housing bust has caused more people to rent instead of buy – sometimes by choice and sometimes out of necessity. Moreover, cities offer shorter commutes, a big draw given today’s higher gas prices and growing concerns about the environment.

So is there evidence that cities are really making a comeback? Earlier this year, a widely-reported Brookings analysis using 2011 Census estimates suggested that they were, reversing the long-term trend of faster suburban growth. However, it later became clear that those 2011 Census estimates should not be used for areas smaller than counties, which includes most cities and suburbs (see “the fine print” at the end of this post).

Knowing that we couldn’t use these Census data, we decided to tackle this question another way. Using U.S. Postal Service data on occupied addresses receiving mail, we calculated household growth in every ZIP code from September 2011 to September 2012. (A previous Trulia Trends post explains in more detail how these data are collected.) Consistent with earlier studies of city versus suburb growth, we compared the growth in a metro area’s biggest city with the growth in the rest of the metropolitan area, across America’s 50 largest metros.

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