The end of World War II brought the start of the baby boom and the beginning of a housing pattern that is burned as deeply into the American psyche as baseball and apple pie. “When I grew up, there was no question that when people had a family, they moved to the suburbs,” says Arthur C. Nelson, director of the Metropolitan Research Center at the University of Utah.
By most accounts, suburbia remains a popular choice of people once they enter the child-raising stage of their life. “We all know that when you have kids, life changes,” says John McIlwain, senior resident fellow and J. Ronald Terwilliger chair for housing at the Urban Land Institute.
The 2009 American Housing Survey from the U.S. Census showed that more than half of all households with children under the age of 18 live in metropolitan suburbs. The 2011 National Community Preference Survey by the NATIONAL ASSOCIATION OF REALTORS® showed people ages 30-39 years old have a stronger preference for the suburbs — compared to the city or small towns/ rural areas — than any other age group at 47 percent. And a 2011 survey by John Burns Real Estate Consulting of Irvine, Calif., showed 46 percent of homebuyers and potential buyers ages 31-45 preferred a home in a large-lot, suburban development.
Today, many suburbs are even more attractive to people with kids — or at least more affordable — because that’s where home prices fell hardest during the housing crash. Buoyed by low prices, low interest rates and plenty of inventory, the suburban dream of better schools, safer neighborhoods and larger homes on larger lots has never been more obtainable.
Lots of Housing Choices
With the boomers, ages 46-66, concluding their child-rearing years and the millennials, ages 13-31, either too young or postponing parenthood, this is primarily a bonanza for generation X, ages 32-45. The smallest of the three generations at 62 million, gen Xers — at least those not caught in the crash themselves — would appear to have plenty of opportunity to move up as the 80 million baby boomers begin to move out. “They’re in luck,” says Christopher B. Leinberger, a land-use strategist and researcher.
But that doesn’t mean they’re guaranteed a winning roll of the dice. “Gen Xers have a lot of choice, but they should be careful before they leap,” says Leinberger. “They shouldn’t get seduced by the low cost of a home, because they could be jumping into a downward spiral.”
While rising gas prices didn’t cause the housing crash, they fanned the flames by putting additional heat on household budgets — especially in fringe suburbs where the increased cost of commuting more than wiped out the savings of buying a home for less. It’s no coincidence that the degree to which home prices eroded in the crash corresponded to the distance they were from urban centers where people work and obtain needed services.
The irony is that prices dropped so far that even with gas pushing $4 a gallon, the tradeoff between high transportation costs and low housing costs in fringe suburbs suddenly seems worth considering again — or does it? Gasoline prices have climbed in a mostly straight line from around $1.50 a gallon in 2002 to around $4 a gallon in 2012 — a compound annual increase of nearly 10 percent, according to Nelson. Based on that trajectory, gas prices will hit $8 a gallon by 2020.
Driven by visions of triple-figure fill-ups, people are starting to do the math. “For the first time in my life,” Nelson says, “I’ve seen home buyers integrating the ever-increasing price of gasoline into their home-buying decisions.”
That’s good because a 2012 report from the Center for Neighborhood Technology reveals that nearly three out of four American communities are already unaffordable when transportation costs — the second largest expense in a family budget — are considered along with housing.
According to the center’s Housing and Transportation Affordability Index, combined housing and transportation costs should consume no more than 45 percent of a household’s budget based on the area’s median income. If only housing is considered, 76 percent of U.S. communities are considered affordable based on spending 30 percent of household income on housing. However, when transportation costs are factored in, the number of affordable communities plummets to 28 percent based on spending 15 percent on transportation.
If the next decade is anything like the last, the affordability gap will only get worse. Data from the index, which covers 180,000 neighborhoods and 89 percent of the U.S. population, revealed that housing and transportation costs — up 37 percent and 39 percent respectively — dramatically outpaced incomes — up 22 percent — between 2000 and 2009. At the same time, less than 1 percent of the 6 million households added in that timeframe were in location efficient neighborhoods.
No wonder the fringe suburbs are bearing the brunt of the foreclosure epidemic. “A lot of those homes are vacant and they’re going to stay vacant for a long time,” says McIlwain. A study by Nelson estimates there will be 22 million unwanted large-lot suburban homes by 2025.
That’s why Leinberger warns gen X homebuyers against being “seduced” by the low cost of suburban fringe housing and foresees a “downward spiral” in many fringe suburbs. A 2011 study of census data by the Brookings Institute showed that the suburban poor population grew by 53 percent between 2000 and 2010 compared to 23 percent in cities — with much of the growth occurring between 2007 and 2010 as the housing bubble burst.
Perhaps the biggest potential casualty is one of suburbia’s biggest draws — the public schools. With declining property values come declining property tax collections, an important source of school funding. Plus, when families move out of foreclosed homes, they often leave that particular school district, triggering a cascade of declining enrollment, diminished state support and possible school closures. And it’s not just the schools that suffer from foreclosures. Cities, counties and other local governments can also lose revenue and be forced to slash services.
Schools can feel the squeeze even in stable suburbs. Many baby boomers are staying in their suburban homes longer because they’re working longer, they like where they live and/or they can’t move because their home is underwater. That can mean more homes without kids, which can mean fewer kids attending the neighborhood school, which can mean the school closes. Overall, the number of households without children is expected to climb to 71 percent by 2030, according to Nelson.
Add it all up and today’s young parents have more to think about than their parents did when deciding where to raise their children. The vision of a larger home on a larger lot still tugs at them, but so does the fear that suburban property values — especially on the fringe — may remain depressed for a long time while those in or near the city are showing signs of recovery. They realize that child-rearing is just one phase of a long life during which their housing preferences will change more than once. Nelson recalls a conversation with a former student living in a bungalow in the city and starting a family. She argued, “Why would I want to buy a house in the suburbs that I might not be able to sell after my children are grown and sell a house in the city that I might not be able to afford after I’m ready to move back?”
Leinberger suggests the answer for families lies somewhere in between. “If they’re looking for a single-family home, they should look in the penumbra — the area around the core — of a great urban place,” Leinberger says. “That way they get the best of two worlds. [Property] values go up because the quality of life goes up. That’s what the research is showing.”
New Housing Opportunities
Gregg Logan, managing director at the real estate consulting firm RCLCO based in Washington D.C., sees plenty of overlap between meeting the housing preferences of people with children and smart growth. “There are two great opportunities,” he says. One is for infill development “to make suburbs more convenient and function in some ways like a city where people can live close to jobs and services.” The challenges are a limited supply of sites and resistance from existing residents to increased density. “People will accept it if there’s something in it for them” such as greater retail, transit or entertainment options, Logan says.
The other opportunity is to create entirely new communities near job centers or that include job centers. Despite being the smallest generation, gen X represents the greatest share of the market for master planned communities that blend the benefits of city and suburban living, says Logan.
Right now, there is a growing glut of existing housing that people don’t want — suburban fringe — and a swelling need for what Logan calls convenient suburban housing that incorporates energy efficiency. Logan says new homebuilders should take their cue from Apple Computer, which continually manages to sell new products because constant innovation makes the old products obsolete. When planning what and where to build next for gen X as well as the other generations, builders needs to ask themselves “What can I do to hasten the obsolescence [of existing housing stock] so I can get back to selling more product?” Logan says.