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Is Urban Flight to the Burbs Golden?

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Market Data + Trends

Is Urban Flight to the Burbs Golden?

A look at the future of urban and suburban housing post-COVID


By Mike Beirne, Senior Editor November 24, 2020
Flock of migrating birds forming an arrow
The demand for the suburban lifestyle is persistent in American culture, driven by affordability and better schools | Photo: stock.Adobe.com

The next golden age of housing is here, and it’s being driven by Millennials in their mid-30s, empty-nester Baby Boomers who fall squarely in the 55-plus category, and Gen-Z members that are about to enter the housing market ... so says Charles Elliott, president of Toll Brothers Apartment Living

“The inflection point was 2018 when urban demand shifted to suburban demand,” said Elliott during a recent Future of Housing panel discussion hosted by the National Association of Home Builders (NAHB). “We’ve seen it on the rental side since 2015. The increasing demand for the suburban lifestyle is something that really is persistent in American culture. It’s long been driven by affordability and better schools.”

The suburban shift is most pronounced in what Dr. Robert Dietz, NAHB’s chief economist, calls the outlying counties of small metro markets, places similar to the suburbs near Dayton, Ohio and Daytona, Fla. Those locations, where population is under 1 million, accounted for 9% of annual single-family construction and grew 3% during the second quarter of 2020 compared with the second quarter of 2019, while activity in central business districts declined 17% during the same time period. Other suburban markets also declined year over year, but the drops in those segments were less compared with big cities, correlating with lower density, or less housing units per acre, in those locations. 


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Multifamily Activity in Urban vs. Suburban Locations

It’s not just single-family but multifamily, too. Small markets account for about a third of apartment construction but starts are growing faster there compared with counties in or near major metros.

“We expect more low-rise, more garden-style apartments, more of that missing middle quite frankly,” says Dietz. “The light touch of density that we really need is going to be built because of this evolving geography of demand as it moves out to these low-density markets.”

So are consumers really fleeing urban areas for the suburbs? Well, it depends on the city.

Average rents for apartments in downtown markets declined 6% during the third quarter from their March peak and 9% from projections. “This is a repricing, the likes of which we have never seen,” says John Affleck, vice president of marketing analytics for Costar, which owns Apartments.com, an online marketplace for rentals. 

He added that expensive downtown apartment markets, such as the Bay Area, Seattle, and Boston, are seeing a massive flight to affordable markets. Among the places that have seen a net increase in migration is the Inland Empire, where rents in bedroom communities can be $1,000 cheaper than a Los Angeles apartment. The migration has helped raise rents in the Washington, D.C. satellite communities of Norfolk and Richmond, Va. by 5%. Even Sacramento is showing rent growth because San Francisco—a two-hour drive away—is among the most undersupplied (and unaffordable) housing markets.

 

Sellers' Market

National listings of for sale properties on Zillow are down 37% on a year-over-year basis, reflecting that potential sellers are holding back, says Svenja Gudell, chief economist for Zillow Group. However, expensive markets such as San Francisco and Los Angeles are seeing more listings compared with a year ago, suggesting that more residents are moving out of those markets.  

However, Gudell noted there are pockets of strength on the for sales side in some cities; namely, the number of days that properties are on the market has dropped to just 12 compared with 27 this time last year. Like Affleck, she sees more urban flight to rental and for-sale housing in the suburbs, accelerated by the ability to work remotely or to commute to the workplace only a couple times a week.

"We are in quite historic times where there is a bit of bifurcation in the market." —Svenja Gudell, chief economist for Zillow Group

“We are in quite historic times where there is a bit of a bifurcation in the market," says Gudell, where home purchases—despite very high prices—are possible if a buyer has good credit, the ability to make a big down payment, and a secure job. “If not, you’re faring quite differently and that often gets lost in these numbers when you looking at averages and medians and talking about the big picture. There is a problem brewing there."

 

Economic Recovery

Elliott of Toll Brothers commented that the overall U.S. economy experienced a K-shaped recovery and tells the tale of two consumers. For example, the pandemic made Millennials living downtown realize the value of a home. Faced with spending less money on restaurants and entertainment during the shutdowns, they accumulated funds for a down payment. Meanwhile, low-income households and consumers just starting their careers were hurt by the Great Recession and the pandemic combo, which was evident in the drop in renter household formation.

Among the developments regarding the future direction of housing that Elliot says Toll Brothers is watching include:

  • What is the permanence of working from home as society moves forward?
  • If people can work remotely, would they choose to keep their urban residence and buy a second home?
  • Will management of the pandemic give more confidence to urban dwellers about staying there?
  • What will happen with big city crime and could a resurgence trigger urban flight as happened during the 1960s and ‘70s?

 

Written By
Senior Editor

Mike is the senior editor of Pro Builder and Custom Builder magazines. A two-time Jesse H. Neal Award winner, Mike has nearly 30 years of journalism experience plus numerous news and feature writing awards, including honors from the Society of Professional Journalists, the American Society of Business Press Editors, and the National Association of Real Estate Editors. He also operated a masonry restoration business for more than two decades. [email protected]

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