The end of suburban housing?

Research from SCAG, the Southern California Association of Governments, indicates that the U.S. is experiencing a shift in the way many Americans will want to live in the future. A large aging population coupled with a younger generation that has developed a different set of values where housing is concerned is a major force driving this change. It is predicted that both of these groups are going to prefer living in a more urban setting with easy access to jobs and all the conveniences and amenities desired. In addition to these groups, the now prevalent desire of the general population to own a large suburban house is predicted to wane in future decades. Factors such as the increasing cost of transportation to jobs, environmental pressures, and the expense of owning a large suburban property will create financial stress, causing people to want to live in a centrally located, often multi-family, environment. The prediction is that most large U.S. cities will become similar to Manhattan or eventually even similar to more densely populated cities, such as Singapore and Seoul.

Due to these shifts in how Americans want to live, demand for suburban housing may never be as great as it once was. Lower demand means lower prices. As a result, SCAG researchers believe suburban homes, especially those near the major urban centers, will take a very long time to reach the upper price levels achieved during the price bubble. Some may never make it back to those levels.

Below is an article that Mr. Ikhrata’s staff kindly drafted exclusively for the AppraisalPort newsletter. It gives more detail about what SCAG does and how the researchers arrive at some of their conclusions. Their numbers are based on six Southern California counties (they don’t include San Diego), but I think the conclusions and trends discussed can apply to any large city in the U.S. You can get more information on the Real Estate Research Council of Southern California here.

To ensure they are globally competitive and remain in business for decades, companies participate in long-term strategic planning regarding their facilities, equipment and – often their largest investment – human capital. The Southern California Association of Government (SCAG) mirrors this process by updating its long-range transportation plan for Southern California every four years based on updated demographic information. The purpose is to ensure that people and businesses in the southland have a safe and efficient transportation system that serves nearly half the state’s population. The most recent plan, the 2012–2035 Regional Transportation Plan/Sustainable Communities Strategy (RTP/SCS), incorporated housing needs over the next couple of decades. Housing and transportation are inextricably linked. Providing people with varied housing and transportation options that meet their personal needs enhances economic growth and quality of life.

The population in Southern California is anticipated to increase by four million, from 18 million today to 22 million by 2035. Planning for this increase requires reviewing demographic projections two decades into the future and employing sophisticated economic models to determine the most efficient use of land for both transportation and housing. The critical components that must be considered are the number of housing units that must be constructed to meet future demand, the appropriate size and type, and the right location. Then, a multi-faceted transportation system that allows for walking, driving, and public access must be constructed to provide people with options to travel from their residence of choice to work, school, recreation, or elsewhere.

Along with an increase in population growth, the region is anticipated to add 1.7 million jobs by 2035. For businesses to operate at maximum profitability, attract and retain a productive workforce, and remain nationally and globally competitive, they too require access to a transportation system that guarantees the efficient movement of their goods and services. For example, one of the region’s largest jobs producers and tax revenue generators is international trade. Together, the San Pedro Bay Ports of Long Beach and Los Angeles account for 1.2 million port-related jobs in the region and nearly $11 billion in state and federal tax revenue. Ensuring that this industry has the ability to operate at maximum efficiency to compete globally in the 21st century, and is environmentally responsible will require a significant investment in a network of goods movement options employing near zero emissions technology.

According to the U.S. Census Bureau, the biggest increase in population over the next two decades will be in the age group of 65+. Currently, this demographic accounts for 11% of the region’s population. However, by 2035 it will rise to 18%. This number is significant when compared to the 21-64 age group whose percentage is projected to fall from 59% in 2010 to 53% by 2035. This shift will impact both housing and transportation demands as people downsize their desired home square footage and increase their demand to access public transportation.


Reversing trend of single-family-dominated construction

Another demographic shift has been underway with a decrease in birth rates and an increase in homes with single occupants. In 1960, 48% of households included children. This percentage fell to 32% in 2005 and is expected to fall further to 26% by 2040. Another way to express this change: Nearly half of American households included children 50 years ago, but only about 1 in 4 will include minors 30 years from today. The other trend that has occurred and is expected to continue is the number of households with only one occupant. In 1960, 13% of households were single-occupant, but by 2040 that figure is expected to rise to 34%. Together this shift of more residences without children and of single individuals is expected to create a housing demand for multi-family and townhome units with smaller lots compared to the traditional 1960s California “ranch style” large lot. This trend is also substantiated by the number of building permits that were issued in the region over the past decade. In 2000, 70% of permits were for single-family homes. However, by 2011 that number had dropped to around 40%. This is in contrast to a 30% issuance of multi-family permits in 2000 rising to nearly 60% by 2011.


Building permit trend

According to the Population Reference Bureau the world is experiencing a trend of people moving from a rural to an urban lifestyle. In 1800, 3% of the world’s population resided in an urban setting compared to nearly 50% by 2008. There has also been a rise in people moving to Megacities – those with populations exceeding 10 million. In 1975 only three cities in the world were categorized as Mega. The number rose to 16 in 2000 and is projected to reach 27 by 2025. This trend is mirrored in the SCAG region with an increase in housing units around downtown Los Angeles. In just one decade, from 2000 to 2010, this area experienced a 75% rise in housing units from 14,700 to 25,750.

Whether people reside in one of the 400+ cities with populations exceeding one million or a Megacity, the question of quality of life and walkability will be more prevalent. As we look around the world at large urban areas, there are successful models of land development that integrate housing and infrastructure such as Hong Kong, Singapore, and Seoul. These cities are investing in infrastructure that enables the movement of people by various methods – public transportation, walking, biking, etc. There is more construction of housing units that are smaller and use land more efficiently. This shift is being replicated in our region with an increase in construction of mixed-use and walkable neighborhood centers that incorporate easy access to transportation, more commonly referred to as Transportation Orientated Development.

As the nation’s largest metropolitan planning agency representing six counties, 191 cities and more than 18 million people, with a gross regional product approaching $1 billion, SCAG is continually working to improve the quality of life for residents and the productivity of businesses, including improved housing and transportation options. Planning for strategic investments in a 21st century infrastructure system will be critical to maintaining and enhancing the region’s global competitiveness and the Southern California lifestyle.


Anticipated outcomes


Anticipated outcomes, continued

To learn more about the Southern California Association of Governments, please visit their website at www.scag.ca.gov, like them on Facebook and follow them on Twitter.

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