The Changing Face of Suburbia and the City – And What that Means for Investors
The housing market will face major changes in the not-distant future which will (once again) reshape the urban and suburban housing market. Millennials are growing older while at the other end of the spectrum, seniors are getting no younger and the direction both are going will impact the housing market immensely – as well as investors. Several different generations will be moving both into (and out of) urban and suburban areas, and speculation is intense since investors' bottom line depends on getting it right.
We looked at a large piece posted on the Bigger Pockets website and one thing we noted was that the two famously large generations may impact the housing market in their unpredictability. Baby boomers, who would seemingly be ready to downsize and leave the suburbs for greener pastures, are apparently staying put according to research data. Some boomers are doing the opposite when moving – but far from downsizing, they're finding similar suburban digs or even adding more square footage! We've written about millennials in the past; this generation is also credited in the Bigger Pockets article for adding life to big cities. Sparked by their interest in finding easily accessible jobs, enjoying life in the urban environment, and the low crime rates of the early 2000-2010's millennials flocked to large cities in droves, driving apartment life, construction, and rent along with them.
Yet nothing stays the same, and millennials are aging just like the boomers before them. These young and child-free professionals have now become older, married or otherwise attached professionals who are starting families...and like older generations before them are heading for the greener grass of the suburbs. Crime, which was at attractive lows, has begun to rise to unfortunate higher levels: there was a spike in big city crime in 2014-2015 and murder rates jumped by an alarming 11% last year in the country's biggest cities, according to the article's data. Between rising crime, higher taxes, costly child-care, and under-performing schools, it's easy to see why millennials are seeking to move their young families away from the city and into the relatively safer, less-expensive, and better school districts of the 'burbs. Interestingly, according to other data we found , for millennials who aren't sure the deals will go their way, at least 62% also search for suburban rentals while looking to buy. This dovetails with Bigger Pockets info that says millennial renters are even beginning to seek the sanctuary of the suburbs.
Hot on their heels comes Generation Z, which grew up attached to technology and came of age under the specter of 9/11, growing fears of terrorism, and the economic instability of the Great Recession. While they'll also head to the cities like Millennials, experts believe it'll be in the form less of renting and more of urban home ownership. Speculation, according to the article on RisMedia, is that the uncertainty of their early youth has left this generation seeking security and determined to find economic success and home ownership. They are expected to value purchasing over renting; and when in the urban environment will still seek to buy their homes instead of renting apartments as the millennial generation did.
The market is already beginning to reflect some of the changes that may be coming down the road. The Bigger Pockets piece tells us that suburban home building is up by 10.9%, while permits issued for apartment development is down in most major cities. We recently wrote about the top ten metro areas with the most permits issued – and although some of these areas posted impressive numbers, overall permits are down. Similarly going downhill: rental rates have also seen a steady decline in many of the largest urban areas.
The Bigger Pockets article recommended investors should keep a wary eye on the different markets: watch for high-crime areas or areas that seem to be going downhill, but conversely look for areas where residents get the best of both city/suburban worlds ...without the higher crime rates or undesirable school districts of urban markets. Investors should also watch for areas that might stagnate if more millennials make a run for the suburbs. Investors also might look at smaller, secondary markets that are seeing more growth. Also, as one of our previous articles notes: there are urban areas showing growth so factoring in all the data is a must! As boomers move onward and upward, millennials head for the picket-fence lined homes of the 'burbs, and Gen Z hits the city but might be more interested in urban home ownership, the only certainty is the housing market has some major shifts coming soon and investors need to be aware and make smart decisions.