Are the Suburbs Booming?

Everyone says the suburbs are hot. CNN headlines "Manhattan apartment sales plunge while the suburbs boom." The Dallas Morning News says "The suburbs are booming." The Toronto Star says "COVID-19 has home buyers seeking greener pastures in the countryside and suburbs." My Atlanta colleague Mary Jo says "Realtors are constantly on the local message boards asking people if they are thinking of selling because they have buyers but nothing to show them."

But if you take a magnifying glass to the data, you see a different picture. The real estate site Zillow has the data nerds on staff and writes:

Some faint signals may have emerged in certain places, but by and large, the data show that suburban housing markets have not strengthened at a disproportionately rapid pace compared to urban markets. Both region types appear to be hot sellers’ markets right now – while many suburban areas have seen strong improvement in housing activity in recent months, so, too, have many urban areas.

Richard Florida notes that it has ever been thus, that when people start having families they tend to move to the suburbs if they can afford it.

Of course, not everyone can move; as Jonathan Miller of appraisal firm Miller Samuel tells CNN, it takes money, and the kind of job where you can work from home. That is why it is the more expensive houses that are most in-demand. "The numbers show mobility and mobility is about wealth."

This is the fundamental problem here, and the reason this boom in the suburbs probably won't last. In fact, the opposite is likely to happen; Professor Arthur C. Nelson of the University of Arizona claims that "millions of American homes could become unsellable – or could be sold at significant losses to their senior-citizen owners – between now and 2040.

The study predicts that many baby boomers and members of Generation X will struggle to sell their homes as they become empty nesters and singles. The problem is that millions of millennials and members of Generation Z may not be able to afford those homes, or they may not want them, opting for smaller homes in walkable communities instead of distant suburbs.

This is something we have discussed in our posts about the baby boomer world on MNN, most of which are now on Treehugger. Right now in the USA, 74% of the 70 million baby boomers live in the suburbs and they're not going anywhere. As I asked in "If Boomers Aren't Budging, Where Will Millennials Live?"

North Americans love their single-family houses. And why wouldn't they? They provide privacy, lots of parking for cars so it's easy to drive to the mall or the doctor. It works wonderfully, especially if you bought your house 30 years ago for a fraction of its current value. That's why so few baby boomers are selling their houses; as long as they can drive, why would they?

Especially right now in the middle of a pandemic that has been racing through nursing homes, no doubt every boomer in a house has plans to age in place, to stay put as long as possible. It's no wonder that people who want to move RIGHT NOW are having trouble finding anything because nobody is selling if they don't have to. They are also the people who are fighting every new development proposed near them because they like things the way they are and think it preserves their property values.

But as we keep saying, 2/3 of everything can be explained by demographics, and those healthy and happy motoring 75-year-olds at the leading edge of the baby boom may soon find themselves in different circumstances. They may have lost their drivers licenses, and find that they are not aging in place, they are stuck in place. They may then find they are the ones with nowhere to live. As I noted,

Young people can't get houses because the boomers won't sell, they can't get apartments because the boomers won't let anything get built, and then in10 years, the boomers are probably going to be stuck in houses they can't sell and have nowhere to move anyway because they fought every new development.

What happens if there are more baby boomers trying to sell than there are Millenials and GenZers willing or able to buy? Professor Nelson is asking the same question, noting that many boomers are depending on their home to be their retirement nest egg."What if you pay off your mortgage over 30 years," he added, "and nobody buys the home?"

"We're going to wake up in 2025 – give or take a few years – to realize that millions of seniors can't get out of their homes and that it’s going to get worse in to the 2030s," he said. "We must start doing things now to reduce the coming shock of too many seniors trying to sell their homes to too few younger buyers."

Many Americans are doing the exact opposite, fighting to save single-family zoning so that there are no new apartments that they might be able to move in to, to make room for those younger buyers.

A few years ago I wrote a post with the title:

We're Witnessing the Third Industrial Revolution Playing Out in Real-Time

In this post described the problems society might face as the digital revolution really kicks in. I quoted economist Ryan Avent, from his book "The Wealth of Humans":

... the digital revolution is very much like the industrial revolution. And the experience of the industrial revolution tells us that society must go through a period of wrenching political change before it can agree on a broadly acceptable social system for sharing the fruits of this new technological world. It is unfortunate, but those groups that benefit most from the changing economy tend not to willingly share their riches; social change occurs when losing groups find ways to wield social and political power, to demand a better share. The question we ought to be worried about now is not simply what policies need to be adopted to make life better in this technological future, but how to manage the fierce social battle, only just beginning, that will determine who gets what and by what mechanism.

Now we have the pandemic, and it has kicked the revolution from real-time to fast forward. The digerati who manipulate words and numbers on keyboards and screens are doing just fine, working from wherever and buying whatever. Those in the service industries are not so fine, and not so mobile. Many of them are not working at all. In an important and disturbing article in the Wall Street Journal, Christopher Mims describes how Covid-19 is dividing the American worker and hurting the service workers in particular.

What’s mak­ing things worse for these work­ers and their fam­i­lies is that the pan­demic is also ac­cel­er­at­ing the ar­rival of re­mote work and au­tomation. It is a turbo boost for adop­tion of tech­nolo­gies that, ac­cord­ing to some econ­o­mists, could fur­ther dis­place lower-wage work­ers. It could also help ex­plain the “K” shaped re­cov­ery many pun­dits have ob­served, in which there are now two Amer­i­cas: pro­fes­sion­als who are largely back to work, with stock port­fo­lios ap­proach­ing new highs, and every­one else.

He concludes that a turbo boost may change the way people work and eliminate many jobs.

The pan­demic has moved up the adop­tion of cer­tain tech­nolo­gies by years, es­pe­cially those sup­port­ing au­tomation and re­mote work. In the short term, this means pro­found dis­rup­tion—job loss and the need to move to new roles—for many Amer­i­cans who have the least where­withal to cope.

Every trend we have been talking about for years has been accelerated by the pandemic, every problem has been magnified. Because not only are the baby boomers a huge demographic cohort with something to sell, but thanks to economic changes that got a big kick from the coronavirus, the proportion of the Millenial and Generation Z cohorts that will actually be able to afford to buy a house may have shrunk dramatically. A few years before Covid-19, Ryan Avent wondered how this would end, in words that are surprisingly prophetic:

We are entering into a great historical unknown. In all probability, humanity will emerge on the other side, some decades hence, in a world in which people are vastly richer and happier than they are now. With some probability, small but positive, we will not make it at all, or we will arrive on the other side poorer and more miserable. That assessment is not optimism or pessimism. It is just the way things are.

This all started with a question: Are the suburbs booming? It's all a long, convoluted answer that can be summarized: No, it's a short-term burp caused by a shortage of supply thanks to baby boomers not selling, and a relatively small portion of the population who are mobile and who are trying to buy.

I said it before the coronavirus hit, and will reiterate what I and now Professor Nelson say: The demographics point to a decade from now when more boomers are trying to sell than there are young people willing and able to buy. The Covid-19 has just made the problem that much worse, that much faster.