Housing Bubble

Intown housing demand steady

May 27, 2003

The market for intown housing remains steady, due primarily to demand from young, childless singles and couples, along with older affluent professionals and retirees, according to industry experts at the Urban Land Institute’s (ULI) recent Spring Council Forum in Baltimore.

The forum, which drew nearly 2,200 ULI members and guests from the public and private sector, focused on the regeneration of America’s cities, including the continued downtown migration being experienced in many urban regions. According to ULI Senior Resident Fellow William H. Hudnut III, downtown housing is appealing to three groups seeking the convenience and excitement of an urban lifestyle: “singles” —the yet-to-commit crowd who moves first and then looks for a job; “mingles”—married professionals with established careers, possibly pets, but no children; and “jingles”—still-working or retired empty-nesters who are moving in once their children leave home. “Central business districts are turning into central social districts offering culture, arts and entertainment,” Hudnut said.

Despite a slip in some downtown populations following the September 11 terrorist attacks, several urban areas have experienced downtown population increases since 1990.

For instance, U.S. Census Bureau statistics show that Houston, Seattle, Chicago, Denver, Portland (Ore.), Atlanta, Memphis and San Diego all experienced greater percentage increases in their downtown populations than in their entire urban areas over the past decade. Other cities, including Cleveland, Baltimore, Philadelphia and Detroit incurred downtown population increases while losing population as a whole. Moreover, the number of households with children—the market segment least likely to prefer downtown living – is declining; by some industry estimates, up to 75 percent of U.S. households likely will have no children living at home by 2010.

According to David R. Mayhood, president of The Mayhood Company in McLean, Va., (outside of Washington, D.C.) much of the demand for downtown housing is being driven by young professionals with sufficient income to bypass rentals and purchase their own units. “We are seeing a lot of 25 to 35-year-olds with high incomes who don’t need to rent. The average age of our purchasers has dropped (from 45 to 35 over the past two decades) and we see this continuing. The demographics are there to support the market (for owner-occupied housing),” Mayhood said. Local developers thoroughly familiar with the market tend to be more successful than national developers who might not have close ties to a particular area, he noted. “We are seeing a new generation of developers with a better understanding of what consumers want,” Mayhood said.

The desire for urban living is evident in smaller U.S. cities as well as the largest ones. Thomas Chema, president of The Gateway Group in Cleveland, described a major downtown revitalization in that city sparked years ago by the construction of the Jacobs Field for the Cleveland Indians. Over the past decade, 2,000 new apartments and condominiums have been built “within two blocks of second base,” Chema said, along with Gund Arena, restaurants, night clubs, and other entertainment facilities. “We’ve brought residents back to the city…we have housing where there was none before,” he said.

Those migrating to downtowns place a premium on quality-of-life factors, including proximity to employment, entertainment, shopping and recreation, said Jack Shannon, president and chief executive officer of East Baltimore Development, Inc. in Baltimore. “To attract talent, quality of life is the key. In today’s environment, they (intown residents) value diversity as much as money,” Shannon said.

Rising numbers of immigrants, including both low- and high-wage earners, comprise another key market segment driving urban revitalization efforts, forum participants noted. The continued migration of immigrants is important in maintaining the competitiveness of U.S. cities, pointed out James H. Johnson, Jr., professor at the Kenan-Flagler Business School at the University of North Carolina in Chapel Hill. More stringent federal immigration policies put in place following the September 11 terrorist attacks could ultimately have a chilling effect, he said. “These policies raise questions about whether cities will continue to be viable. The free flow of people, goods and services internationally is what drives cities today,” he said. “Employers are recruiting immigrants, and the cities that learn how to manage the transition to being ethnically diverse will be the most successful.”

Although the market for downtown housing has increased, most units are in the higher price ranges, due to the expense of building in close-in locations. As a result, affordable housing is rarely included in new development or redevelopment projects without public subsidies or incentives. But, while local governments generally realize the need to encourage provision of more moderately-priced, “work-force” housing, it is getting increasingly difficult for them to offer subsidies due to severe fiscal constraints. Several participants pointed out that a shortage of desirable, affordable housing in cities contributes to a segregation of rich and poor residents.

“I am concerned over the concentration of poverty in our cities. There is a growing inequality (of incomes)…We are in our third generation of haves and have-nots, and the gap is getting wider. Our cities must be more inclusive,” Johnson said.

Mixed-income housing fosters the diversity that “draws and keeps” people in cities, said Chickie Grayson, president of Enterprise Homes, Inc. in Baltimore. The mixed-income housing projects completed by Enterprise in Baltimore have proven popular enough to draw nearly as many people from out of town as those already living in the Baltimore area, she said. “We are seeing a surge of interest in living downtown…we attract people by offering choices and variety in housing, including opportunities for workforce housing. They like the location, pricing and quality,” she said.

While downtowns likely will continue to attract young and older professionals and affluent retirees, it is unlikely that families with children will join the movement, because of the mostly negative perception many have about public schools in central city areas, participants said. Until enough resources are devoted to improving public education programs and facilities, cities will be unable to attract households who cannot afford to send their children to private schools, they noted. “Someone must attack the issue of education. If we don’t solve the problem of education of the workforce, we cannot be an effective advocate of cities,” said Marilyn J. Taylor, chairman and partner, Skidmore, Owings & Merrill, LLP in New York City.

The Urban Land Institute is a nonprofit education and research institute supported by its members. Its mission is to provide responsible leadership in the use of land in order to enhance the total environment. Established in 1936, the Institute has more than 18,000 members and associates representing all aspects of land use and development disciplines.

Source: Urban Land Institute