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Economics, Industry NewsThe great debate: McMansions vs. city center condos
For much of the past, say, 60 years, urban residential development has been on a decentralized path (i.e., cities expanded outwardly fueled by America’s inter-generational love affair with automobiles, especially when gas prices and commuter highways were subsidized). Where developable land was available (in the absence of natural limitations such as coastal regions or mountainous terrain), entire subdivisions grew virtually overnight as households sought bigger and bigger single-family homes with all of the modern amenities and multiple-car garages. High-quality shopping in major regional shopping centers became the norm with professional services and entertainment following the population flow to the “burbs.” Americans decided to neglect traditional downtown areas in most central cities: urban life moved to the “Edge Cities.”
Fueled by rising prices, some cities – Atlanta, Houston and Phoenix — grew without limit. Yes, some regions of the country rebelled against such “sprawling” subdivisions and their attendant strip malls. But continuing subsidies for home ownership and the myth of fabulous returns to housing as an investment fueled the continuous expansion of suburban America. “Trading up” and more recently, “flipping” houses became the norm. HGTV is alive and well on cable television even now.
Now I am not one to lament that the population should have been required to live within the traditional boundaries of America’s older cities. Nor am I sympathetic to the repeated propositions from those who claim that Americans should give up their cars for bus or train passes. The cultural values of the urban-built environment have enabled American citizenry to obtain and maintain the best housing stock in the world. Certainly, immigrants to the U.S. view access to quality housing as a real dream: it is one of the most important features of life here. Despite housing problems in many cities for the poor and working class groups (often made worse by restrictive land use controls), the availability and development of residential space throughout the nation is something of which we can rightfully be proud.
But in the post-housing bubble (after 2007), there is a new debate arising: will the future lead to a continuation of urban decentralization with the re-population of distant, new subdivisions (so-called “McMansions”)? Or will declining prices at the center of cities lead to a return to “downtown living,” often in the form of upscale condominiums where central land values are sufficiently expensive that development must go “up” rather than “out?”
In one corner are those such as the Urban Land Institute (ULI), which predicts that while the recovery of the housing market will take place throughout urban space, there will be a “reurbanizing” of the American suburbs. In a well-done report I wrote on recently, ULI predicts that cities will undergo dramatic changes as a result of the current housing crisis. There are expected to be fundamental differences between the population cohorts: Baby Boomers, Generation X, Generation Y and others. Many will be stuck in their suburban McMansions due to negative equity or limited new construction options. Those with less income may be sent to distant subdivisions where there will be plenty of foreclosed choices at good prices but longer-than-hoped-for commutes.
On the other hand, “pundits, planners, and urban visionaries … have been predicting for years that America’s love affair with the suburbs will soon be over,” notes Joel Kotkin, a well-known housing expert, in a recent story in the Wall Street Journal (July 6, 2010). But he fails to see evidence of a return to city centers and cites a host of evidence to support his doubts. One of the main problems is the over-building of condominiums in many of America’s large cities. He notes that in Miami, a city of extensive urban redevelopment, condo prices are down 75 percent from their peak, while single-family homes are off 50 percent. In Los Angeles, house prices have risen about 10 percent over the past year but condo prices are said to be off 18 percent. In Las Vegas, there is a condo inventory of 21 years! The reason for these differences, according to Kotkin, is a fundamental misunderstanding of household preferences.
So, as with other conceptual disputes, there are competing visions for the future. Cities are complicated organisms to be sure and they take different forms at various times. There is much at stake for households, neighborhoods, communities, cities, suburbs and the entire real estate profession. Alas, life would be so much simpler if we could just predict the future.
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Austin Jaffe, Ph.D. is PAR's Consulting Economist from the Smeal College of Business at Penn State University. |
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Dr. Jaffe:
Thank you for this fine article on housing deliberations and the future. It is documented that many foundations have given billions to re-establish and restructure the urban areas. This is the heartbeat and the center of all the the suburban needs. It is the location of most all the arts and people in the suburbs frequent the cities for these events. It would be good to know the multi-billions of dollars from govenrment support and foundation support spent over the past quarter of century to re-establish the city enviornment. This support has been going on for decades and continues. Perhaps there has been an ultimate objective to this future planning by the individuals meeting around the think thanks