A growing number of US suburbs contain a majority of renters

A new analysis suggests the number of suburbs with a majority of renters is increasing:

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Renters now make up the majority of residents in more than 100 suburbs around the U.S., according to a new analysis of Census Bureau data from Rent Cafe. Another 57 suburbs are on their way to becoming predominately renter territory over the next five years, the apartment search website also found…

Overall, roughly a quarter of the more than 1,100 suburbs near the nation’s 50 largest metro areas are renter-dominated, according to Rent Cafe. Some 21 million people rented their homes in the suburbs as of 2019, up from 17 million a decade ago.

Millennials and members of Generation Z account for most suburban renters, Census data show. Rent Cafe notes that 55% of suburban renters are younger than 45, with median household earnings of around $50,000.

Meanwhile, the pandemic is expected to further fuel the shift away from suburban homeownership in favor of renting. Remote work opportunities have generated more interest in suburban areas within striking distance of cities.

If this is indeed the case, it would be interesting to know if these suburbs share characteristics. Do they tend to be close to the city or further out? Do they have particular hosing stocks compared to other suburbs? Are middle-class and up suburbs still devoted to residents owning single-family homes as a status marker?

My guess is that a majority of suburban residents would still say that they desire to home at some point. But, if more suburbanites are now renters, is the pathway to homeownership in their own community or other suburbs much more restrictive? This is part of the larger affordable housing conversation; people need any decent housing to live in but because many Americans aspire to own a home, having affordable ownership options is important as well.

An interesting middle path in some communities could be having significant numbers of single-family homes with long-term renters. The appearance and status of homes is maintained while renting adjusting for current conditions. On the other hand, many have argued that renters do not care for their properties or communities in the same way and communities may not like this trend.

Chicago as “the nation’s capital of deconversions” from condos to apartments

Henry Grabar suggests Chicago is ground zero for efforts to convert condos to apartments:

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Stories like this make Chicago the perfect place to understand how condos usually meet their end—not in a pile of rubble, but in a buyout that leaves some owners feeling lucky and others feeling betrayed. Lauren Kerchill, the owner of a Gold Coast unit overlooking Lake Michigan, was a holdout when investors came to buy out her building. After fighting to toss her condo board, she told Crain’s Chicago Business she was called “petty,” “greedy,” and “uneducated.” She just didn’t think she could find another home like hers nearby. In the end, she didn’t have a choice. Her neighbors voted to sell her building, at 1400 Lake Shore Drive, for $107 million in 2019—another record, this time the most expensive deconversion in the country…

But there’s another side to the story, in which deconversion is the only way out for condo owners stuck in deteriorating properties. In June, the collapse of Champlain Towers South in Surfside, Florida, drew attention to the challenges that confront condo boards as they assess structural damage and raise money for repairs. Maintenance bills for the Great American Condo Boom of the ’70s and ’80s are starting to come due in areas like South Florida…

While states like Florida, California, and Hawaii saw tons of new condo construction in the decades after the concept was established in the 1960s, Chicago saw a different kind of boom: older buildings becoming condos. Fearing rent control, facing declining profits, or saddled with obsolete prewar commercial space, landlords in Chicago raced to sell off their units in the 1970s. Yuppies and middle-class workers gobbled up these starter apartments, which provided an easy and cheap entry point to homeownership.

Fifty years later, those buildings are among the oldest condominiums in the country. Owners who have not kept on top of maintenance, and even some who have, sometimes find themselves facing massive repair bills.

It would be interesting to read more about the specific aspects of Chicago’s history, real estate market, and local regulations that play into the the number of condo deconversions in Chicago.

More broadly, this gets at two larger housing issues:

  1. How do deconversions fit with a larger American promotion of homeownership? Condos offer opportunities to offer homeownership opportunities in settings where the single-family home is less possible. But, given market conditions right now, is there now increased interest in having more rental units?
  2. While aging and the associated expenses is an issue for condo buildings, it is also an issue for many more housing units in the United States. What happens to older homes and residences when there is limited interest in repairing them or redeveloping the property? In wealthier communities and desirable locations, there are often developers and individuals interested in rehabbing or rebuilding structures. Hence, teardowns or new residences in suburban downtowns. Elsewhere, replacing or changing housing is a more arduous task.

Housing for tenants, housing for landlords?

Who is housing for? The expiration of the national rent moratorium highlights competing interests in American housing:

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The eviction wave is expected to hit population centers across the country. Housing advocates point to renters in Ohio, Texas and parts of the Southeast — where tenant protections are generally low, housing costs are high and economic problems from the pandemic linger — as particularly at risk. Even though it has its own ban in place through August, New York is also a concern, because it has been especially slow at distributing rental assistance funds to the hundreds of thousands of tenants in the state who are behind on their rent.

The last-minute gridlock between President Joe Biden and Democrats in Congress that resulted in the demise of the eviction ban this week threatens to impose new economic burdens on state and local governments. The officials will have to respond to mass evictions triggered by landlords — including many struggling financially themselves because of lost revenue — who are poised to kick out tenants who fell behind on their bills during the pandemic. The renter safety net is severely weakened, with fewer than a dozen state eviction bans in place and state and local governments having disbursed only a fraction of the $46.5 billion in rental assistance that Congress authorized over the past year.

About 7.4 million adult tenants reported they were behind on rent in the latest U.S. Census Bureau survey, which was taken during the last week of June and the first week of July. About 3.6 million tenant households said they were “somewhat likely” or “very likely” to face eviction over the next two months.

The lapse of the eviction ban, which was first imposed by the Centers for Disease Control and Prevention in September as a Covid-19 safety measure, comes after landlords warned that it cost them billions of dollars each month. Industry groups including the National Association of Realtors lobbied against extending the moratorium this week and made the case to lawmakers that it “unfairly shifts economic hardships to the backs of housing providers who have jeopardized their own financial futures to provide essential housing to renters across the country.”

In addition to tenants and landlords, there are more actors involved including builders, developers, real estate agents, mortgage providers, local officials, and more. But, ultimately, whose interests should win out in times of trouble?

The era of COVID-19 is a very unusual time. But, the US has faced severe housing issues before. The housing bubble of the late 2000s. The Great Depression. A housing shortage after World War Two. In the United States, the logic regarding housing tends to default to free markets – people can access what they have resources for and there is much money to be made in housing – plus homeownership. With both, interventions from actors, like the federal government, may be necessary in times of crisis or for people with very limited means. In non-crisis times, interventions can favor developers and homeowners.

In contrast, there is less support for public housing or seeing housing as a right. Housing is needed for a variety of reasons – health, stability, accessing jobs and services, personal space, etc. – but not guaranteed.

If any city or local government truly wanted to distinguish itself as a people-oriented location rather than a market-oriented community, guaranteed housing would be one way to stand out.

Big drop in construction of starter homes of under 1,400 square feet

For younger adults looking for smaller homes to purchase as their first home, there at least one reason they are not easy to find: few have been built in recent years.

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The supply of entry-level housing, which Freddie Mac defines as homes up to 1,400 square feet, is near a five-decade low, and data on new construction from the National Association of Home Builders shows that single-family homes are significantly bigger than they were years ago.

Homeowners from previous generations had access to smaller homes at the start of their financial lives. In the late 1970s, an average of 418,000 new units of entry-level housing were built each year, according to data from Freddie Mac. By the 2010s, that number had fallen to 55,000 new units a year. For 2020, an estimated 65,000 new entry-level homes were completed…

“What was really striking to me was the consistency in the decline in the share of entry-level homes, irrespective of geography,” Mr. Khater said. “The thing that struck me the most was that really, it’s all endemic. It’s all over the U.S. It doesn’t matter where.”…

Homeownership leads to greater wealth for those who buy earlier. An analysis from the Urban Institute estimates that those who became homeowners between the ages of 25 and 34 accumulated $150,000 in median housing wealth by their early 60s. Meanwhile, those who waited until between the ages of 35 and 44 to buy netted $72,000 less in median housing wealth.

Three things stand out to me from this article:

  1. The decline in the construction of these smaller homes is real. The numbers cited above suggest roughly 15% of these smaller homes are constructed now compared to the late 1970s.
  2. At the same time, the definition of an entry-level homes is contingent on square footage. These days, 1,400 square feet is not that large for a home. These standards have changed over the decades; new homes in the 1950s in Levittown were more around 1,000 square feet while many new homes today are over 2,500 square feet. As builders construct larger homes (presumably making more money) and some buyers want larger homes, what is now an entry-level home may have changed.
  3. The final paragraph above considers the wealth implications about being able to buy a home earlier on. This is important: homes are one of the biggest generators of wealth for Americans. Yet, this also marks a shift in viewing homes as investments as opposed to good spaces for people to live.

More Americans looking for vacation homes in Europe

Those with means and resources can purchase real estate around the globe. This is essential for development in many locations, including major cities as well as vacation destinations in Europe:

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From Lisbon to the Greek islands, the Americans are back, ready to take advantage of the buyer’s market in many of Europe’s leading resort areas. There are bargains to be had at the entry and mid-levels, with prices buoyant at the top end…

Knight Frank last week released its Global Residential Cities Index for the first quarter of 2021, giving a view of price changes from the year-earlier period, when lockdowns began to take hold world-wide. It shows double-digit increases clustered in the Nordic countries and Eastern Europe, while prime European second-home destinations that had been inching toward the top in previous years—including Lisbon and Malaga on Spain’s Costa del Sol—are seeing declines…

Americans typically play a niche role in Southern Europe’s luxury second-home markets, which tend to be dominated by sun-hungry Northern Europeans. But they have traditionally made themselves more conspicuous at the very top of those markets.

This is different than Americans looking for relatively inexpensive places to retire; this is about finding real estate to invest in and profit from in the long term in desirable locations. This is an opportunity to make money in locations where prices have decreased, in contrast to numerous markets in and around big cities where prices have increased for years. Homes are places to enjoy and to invest in, as sociologist Brian McCabe argues. Being wealthy and staying wealthy can depend, in part, on buying real estate when it is available and then profiting later.

All of this is an opportunity that most Americans do not have or could not even dream about. A second home in a foreign country? The ability to travel there regularly? Being able to sell this property later and/or pass down profits to heirs? Just as those featured on HGTV’s International House Hunters are a select group, those who can take advantage of a European buyer’s market are limited.

People using localized social media for an edge in searching for homes

Scroll through local Facebook or Nextdoor groups and there is a more common request these days: does anyone know of an upcoming listing for a 4 bedroom home in a desirable neighborhood? Or, perhaps a three bedroom townhome or house for rent at a reasonable price?

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It is hard to know how many good leads are generated by such posts. They often ask for DMs. Generating more competition for such housing is probably not the goal – though landlords or sellers might be interested in drumming up more interest (also evidenced by pictures of homes soon to be on the market). The more direct interaction cuts out some of the middle actors.

Judging by the posts I have seen, the housing needs seem to be present. Even with economic instability during COVID-19, homes in desirable neighborhoods and communities have held their value or increased in value. The housing supply is limited. At least a few people have looked to move out of cities to quiet suburbs. Stories of bidding wars abound. Finding places at reasonable rents is hard.

I could imagine some broader partnerships between the socials and real estate websites. Imagine a special Zillow add-in to your Twitter feed or a Realtor.com bonus for Instagram. All of the real estate websites are competing and so are the social media platforms; which one can truly integrate real estate into their daily feeds beyond the posts of individual users? Say you are looking for a home with particulars and the social media plug-in can alert you to matches and you can get an exclusive bidding window; potential buyers could feel they get an in and realtors might like the added competition among buyers ready to spend.

All of this might matter less if there is more housing supply in the future. Yet, if real estate is truly so lucrative because there is only so much land in the first place, why wouldn’t it permeate even social media.

Could housing bounce back even more unequally after COVID-19?

Even as rents dropped in some major cities during COVID-19, might increased interest now reinforce existing issues in the housing market where those with resources have options and those with fewer resources cannot easily get a foot in the door? From Chicago:

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Trisler is among the buyers showing renewed interest in the downtown housing market after attention waned during the past year, as the lure of amenities and access to offices, restaurants and bars took a back seat in many cases to space and relative quiet…

In March, more homes were sold in the Loop and the surrounding neighborhoods than during any other month in at least a year, according to data from the Chicago Association of Realtors. A total of 531 homes were sold across those neighborhoods in March, compared with 418 in March 2020…

Low mortgage interest rates are making downtown condos more affordable to first-time buyers, such as those renting in luxury apartment buildings and looking to buy in similar buildings, he said. Homeowner’s association fees tend to be higher in buildings in dense neighborhoods, but the lower monthly mortgage payments can offset that. And buyers can negotiate good deals on homes in some parts of downtown, he said…

Despite the uptick in sales, lower-priced, one-bedroom condos have been slower to sell than bigger spaces, said @properties real estate agent Chris McComas. He speculated the smaller spaces appeal more to first-time homebuyers, who might have been furloughed earlier in the pandemic.

Some people did just fine during COVID-19. They had good jobs in particular fields that weathered the storm or even thrived during the pandemic. They may have been able to work from home. They already had homes, whether they owned or had rents they could afford.

Others had a tougher time. They have been laid off or furloughed. It could have been hard to find work. They might have become sick. Their housing situation might have been more precarious going in.

Now, as COVID-19 and its effects look like they are winding down, people can think about real estate again. Those who came out relatively unscathed will be able to more easily buy and sell. Those who did not will have a tougher time. This is not solely the fault of COVID-19; this bifurcated housing market has existed for some time. Starter homes are limited in number, somebody is buying the luxury condos that have continued to go up in the biggest cities, and younger adults have several obstacles that could limit their entrance into the housing market. At the same time, this could become another legacy of COVID-19: the ongoing splitting of the housing market.

To get richer, get the right job and then “buy a home in a neighborhood with a lot of zoning restrictions”

David Brooks looks at which professions provide a higher likelihood of getting into the 1% and then how to get even richer once you are there:

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Once you’ve made some money, there’s one more way to get richer. Buy a home in a neighborhood with a lot of zoning restrictions. For example, 84 percent of the land in Charlotte, N.C., and 94 percent of the land in San Jose, Calif., is zoned for detached single- family homes. These restrictions keep the supply of housing low and jack up the value of homes for people wealthy enough to already own one.

My main message is that if you want to get rich, don’t invent a new and useful product, start a company and try to sell it. That seems risky. Put the effort into entering a clubby line of work in which legislators and professional associations are working to make you rich. It’s easier!

While the majority of the argument is about particular professions, I think the connection between jobs and exclusive homes is this: in both cases, the structures are set up to enrich those that can participate. Just as regulations and structures may privilege particular careers, zoning in the United States is often meant to protect single-family homes. If a homeowner can purchase a residence with particular features and in a specific setting, the zoning helps ensure that the property will be worth more in the future. The homeowner is responsible for some upkeep and updating – and may even go so far as to pursue a teardown – but the protections for the property are almost enough in themselves to let the investment grow in worth just be sitting there.

Connected to this, the zoning for single-family homes restricts the number of residences in that immediate area. More density does not necessarily mean lower property values; numerous urban centers – such as Chicago and New York – are home to new tall buildings whose units are only available to the super-wealthy. At the same time, proximity to amenities and particular neighborhoods are desirable and fewer residences there can help drive up the value of existing properties.

To some degree, many Americans are hoping for this to work for them. Go to college and get a good degree from a good school to gain the right skills, qualifications, and access to social networks. This leads to a better job with higher pay. Then, purchase a home in a reputable community where prices will continue to rise. Wait a few decades and let the pay, home investment, and other benefits accrue. This may not lead to being rich but it reduces anxiety about later decades in life.

Of course, the system could be set up in other ways. Do Americans want homes to be investment vehicles? Should there be such differences in pay and compensation across fields or job positions? Is zoning about the good of the community as a whole or about particular land owners? Combating existing patterns is no easy task, particularly in times when any discussion of inequality can quickly get heated.

Asking in San Francisco why a McMansion is allowed but a fourplex is not

McMansions may not just be undesirable on their own. If a McMansion is built, another kind of dwelling is not. One proposal in San Francisco aims to address this:

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He will introduce an ordinance making it much harder to build giant homes — the ones increasingly dotting the hillsides above Glen Park that many San Franciscans deride as monster homes or McMansions, but which are perfectly legal to build.

He will also ask the city attorney to draft legislation making it legal for any corner lot in the city that’s currently slated for one home to allow up to four units. And, most significantly, the legislation will allow any parcel within a half mile of a major transit stop like the Glen Park BART Station to be converted into a fourplex — corner property or not. The extra units could be rented or sold.

Yes, in large swaths of San Francisco — this supposedly progressive bastion — it’s currently legal to build an enormous, over-the-top house for one family, but illegal to build a small apartment building of the same size for four families.

This question plagues many desirable neighborhoods in big cities and suburbs: should anything that disturbs the existing character and/or property values be allowed? If this is the driving question, a McMansion might be a threat because it is a different kind of home – derided by critics as too big, architecturally incoherent – compared to what is already there. At the same time, the McMansion is still a single-family home. If that single-family home was replaced by a multi-family unit, residents then express concerns about increasing densities. They might also have concerns about renters moving into what was a neighborhood of homeowners as many Americans assume renters are less committed to their community.

And, as the article notes, making changes like this often means neighborhood by neighborhood conversations to consider the implications. Will a change have different impacts in different communities? What might be some of the unintended consequences? What will neighborhoods look like in a few decades with changes?

San Francisco may have a particular need for solutions but so do many other locations. The answers might come slowly on a case-by-case basis.

“NYC isn’t dead”…for the wealthiest

A look at the ten most expensive properties sold in the United States in 2020 highlights the presence of New York City properties on the list:

Google Street View image of 220 Central Park South (September 2020)

By the end of September, the volume of Manhattan co-op and condo sales was down 43% year over year, according to a report by Douglas Elliman, as sellers held back from listing their apartments and buyers increasingly gravitated toward the suburbs

Of the top 10 national sales compiled by Jonathan Miller, president and chief executive officer of Miller Samuel appraisers, five were in 220 Central Park South, a new luxury tower on Central Park designed by architects at Robert A.M. Stern

Another trend from this year, namely rich people “fleeing” New York for Florida, didn’t manage to trickle up to the highest tier. Only two of this year’s top 10 sales were in Palm Beach; last year there were three…

Even the three Los Angeles entries diverge slightly from conventional 2020 narratives. Yes, the L.A. market is one of the few urban bright lights this year, with sales soaring and inventory hard to come by. But numbers at the very top are down from last year, when it notched four entries in the top 10, totaling $463 million. This year there were three, totaling $293 million.

The actions of the wealthiest homeowners matters not only because people often have an interest in what those who have lots of money do with all that money; it matters because these are people with clout and influence. If they are continuing to purchase in New York City – it is less clear how much time the owners would necessarily spend in the city – it is a sign of the importance of the city and the prospects for future development.

The optics of 2020 might not be favorable to the list above but the project and the trends were underway far ahead of COVID-19. In a very expensive land and housing market, purchasing a residence in one of the newest buildings and in such a location within Manhattan is an object of desire for some who have the resources to purchase such places. While a figure later in the article notes that the total price for the properties on this list is lower than the price for the properties the year before, this may only allow the wealthiest to get into hot markets even more.

It may (or may not) be worth noting that five of the ten properties are in a tower in New York City while the other five properties are large homes on some land. On the whole, Americans as a whole tend to prefer or idealize single-family homes but the wealthiest in the United States and elsewhere may be more inclined to purchase large units in multi-unit buildings.