The END of the Suburbs?

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The END of the Suburbs?

Shane Pearlman
Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes

With an eye to the future, should we really be buying in remote suburbs, or is that like investing in VHS rental shop in a digital age? I’m seeing what looks like a massive urbanization trend.

I am a buy and holder. Other people put their end of year profits and personal savings into 401k plans. My wife and I buy properties for the future. Putting aside the (highly important) factor of micro-environments for the purpose of this thread, we have been talking a lot about trends. Julie & I learned in 2008 the impact of macro trends. Before that we only thought locally, but seeing the how monetary policy shaped real estate and affected our personal bottom line the way it did, I'm raising my vision to keep an eye on larger forces. If and when the interest rates finally rise and inflation hits to correct market tampering, we'll find ourselves in a very different economic and real estate environment. I’m locking in as many long term low interest loans as I can. 

In the same way that I see a tidal wave of inflation, Julie and I have been watching a steady flow of wealthy people migrating to city cores. In the past 50+ years our poor lived in inner city ghettos and the wealthy escaped to their suburban McMansions. But we are personally experiencing an inversion. We invest in Seattle and I've watched neighborhoods go from hooker to hipster. In the bay area, where we live now, San Francisco rents and prices exploded, which overflowed into an Oakland renaissance. Where do the poor go? Further out to where they now can afford to live. It makes me wonder if the suburbs might just end up our new ghettos. I don't see large companies moving their HQs to suburbs as they did in the past, but rather closing their branches to centralize in major metros. Where the jobs go, people follow.

For the long term investor, where should we park our chips?

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y

I guess it can be area dependent.

Here where I am the suburbs are alive and well. In fact growth is incredible and the areas keep getting better and better. Some people do not want to live in urban core......... : )

I like my privacy and peace and not feeling like I am in a footprint squished in like a sardine to fit. Some people enjoy the extreme hustle and bustle. I love serenity. If anything we have more crime here in the downtown cities close to Atlanta. That element couldn't afford in masses to live in the burbs here in nice areas. 

Maybe Cali is shifting like you say but I do not see a whole country phenomenon happening with that.

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  • Dan D.
    Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes
    11y
    Originally posted by @Jon Loca:

    @Dan D.

    Dan, I agree with you on the working from note you made. In fact, I work from home 2 days every week. 

    @Dan D. @David Krulac 

    Dan and David,

    Assuming that the baby boomers do stay in their homes, they will die and when they do, I really don't think there will be enough people to buy up the properties available in the burbs. The only way I could not see the above happening is if the population growth exceeds the amount of boomers dying or leaving for other reasons. This is a great topic, I'd be interested to hear what you two think. 

     There will be houses available when baby boomers pass away, but keep in mind, our population will continue to grow.  From 300 million to close to 430 million over the next 20 years.  Demand will keep increasing, so good areas aren't going to become vacant unless something happens at a local level to deter people from living there.

    Peak years for baby boomer births in the 1950's was around 4.3 million a year.

    The last few years in America, approx 4.1 million have been born per year.  That number I would think would only continue to rise.  

    People have different preferences as to where to live, but I know in the case of my parents and my aunts and uncles who are all baby boomers, many want to stay tied to their home until they die with no urge to move downtown.  (Small sample set of course).

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  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @John Moore 

    I know some people who live in the Poconos and commute 6 days a week to work on a Broadway show in Manhattan.  they do commute in off hours but its still more than 1 hour each way.  Economics is the reason.  housing in Manhattan is $1,000 a sq. ft, in the Poconos $100 a sq ft.  Big difference, its simply a question of economics.

    I have a current tenant who commutes from Harrisburg, PA. to Washington DC, that's a 2 hour commute one way and they do it 4 days a week and telecommute 1 day a week.  Up at 4 AM, back home by 8PM.

    @Matt R.  

    I'm very familiar with Ocean City, MD, which was severely affected by the tax law change in 1986 and had no appreciation until the tax law changes of 1997.  For that 11 year period you could expect to sell your property for exactly what you paid for it, even if a decade earlier.  I'm also familiar with NYC, we were just there last week for a show at Saks and the Holiday Inn was $300 a night.  And as above the real estate even for a pied de terre is $1,000 a sq ft, and places in OC are $200 -$300 a sq ft.  big difference and a different market place customer.  I don't see NYC, SF, Miami or Las Vegas as competition for OC, three of them don't have beaches and three of them are much higher priced.  I see the competition for OC being Va. Beach, Outer Banks and Mrytle Beach.  The thing that OC has besides 10 miles of Ocean front and the only beach town in MD, is that its proximity to large population areas.  The demographics for OC are people from Washington, Baltimore, Virginia, Delaware, Pennsylvania and even New Jersey all of which are within 4-8 hours driving time.

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    For sure David, there was some mix up in the planning. Originally, the idea was to be like Wilshire Blvd with high rises and the when the SFh owners saw a few they complained to change the plan. LA planned like the wind sometimes. 99% of our suburbs are how you described. Thx

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  • Matt Mason
    Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
    11y

    To sum, I think this thread had some good comments and observations.  To me it is really just future trends and some areas may outperform others.  All things being equal as a buy and hold investor you want to be in the path of progress, wherever that may be.  I agree you don't want to base the majority of your investment decisions on that factor though.

    Some people took this as an attack on the suburbs, which I think is unfortunate and not really the intent of the original post IMHO.  However, the title is inflammatory so I can see why that reaction took place.

    I think the comments about our suburban model being unique to this country are valid.  A lot of our Metro areas became doughnut like from a functional standpoint in the last half of the 20th Century.  It seems like some of that may be reversing and our Metros are becoming more like the rest of the world.

    @Matt R. 

    I am a Rolling Hills graduate myself. The schools closing was more a function of the end of the school age baby boomers and the fact that the area became so expensive for young families.  A great place to grow up though wasn't it.

    2Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    Agreed Matt. Great place to grow up and raise kids. I used to race my moped around the RHHS track around midnight or so:) 

    0Reply
  • Scott K.
    Real Estate Investor · Madison Heights, MI · Member since 2014 · 693 posts · 216 votes
    11y

    well that's just not so in the Detroit metro area.  Everyone that can is getting out of the city.

    The problem with Detroit is the school system sucks so bad that families that care get the hell out.  We have the younger crowd renting lofts and studios in the new downtown buildup. 

    It sucks that I grew up when Detroit was a pit.  I go to Chicago and think why does Detroit not look like this.

    1Reply
  • Shane Pearlman
    OP
    Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes
    11y

    @Matt Mason I think you nailed it. Path of progress is exactly the right term. I started the thread because my business partner asked me about investing in a smaller community over a larger metro and the debate began. 

    And yes, my title was perhaps more appropriate to BuzzFeed. =) ]. A good hook often leads people to click and read, which lets us get a great debate going. 

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  • Ray Foley
    Real Estate Attorney · Detroit, MI · Member since 2014 · 25 posts · 14 votes
    11y

    Painting every family that lives in Detroit as a family that doesn't care is a bit hyperbolic don't you think?

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  • Scott K.
    Real Estate Investor · Madison Heights, MI · Member since 2014 · 693 posts · 216 votes
    11y

    so you don't think the school system sucks?  Not every kid can go to Cass tech

    I don't blow smoke up people's rear

    Sorry the truth is a sad state of affairs in Detroit

    Wake up and tell the tfuth

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  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    Reviving this thread because of this interesting article I read tonight.  Provides a good counter-point to some of the claims made in this thread:

    http://www.forbes.com/sites/joelkotkin/2014/12/10/...

    Some key quotes:

    "America’s population growth in the 2010 decennial Census was more suburban than in the previous decade. In the 2000s roughly 90% of metropolitan growth was in the suburbs, somewhat higher than in the previous decade. Overall, notes demographer Wendell Cox, since 1990 the country’s metropolitan regions have gone from 82 to 86% suburban."

    "In the 2010-2013 period the percentage of growth in suburbs was basically the same as its overwhelming share of metropolitan population. In only six of the nation’s 52 metropolitan areas with over one million people did the core city grow more than the suburbs."

    "...the vast majority of millennials — some 70% — already live in suburbs. And although some boosters suggest millennials “hate” suburbs, a survey conducted by Frank Magid foundthat, in imaging their “ideal” place to live, more than twice as many picked the suburbs to the inner city."

    1Reply
  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    The bottom line, based on the data in the Forbes article:

    In areas with trendy center cities and very expensive suburbs (SanFran, Boston, etc), people, especially younger people, are choosing the city center.

    Literally everywhere else, they are choosing suburbs, at a rate GREATER than ever before.

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  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    I remember right after the crash, when those few new homes that were being built were smaller, on average, than homes built in the years immediately preceding the crash, there were a lot of New Urbanist types running around saying, "See, people have seen the light, and don't want bloated McMansions anymore!  The future utopia of density is upon us!"

    You know what happened as the real estate market and the economy in general started to improve?  New home sizes started rising again.

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  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Richard C. 

    Thanks for posting that article, which clearly answers the OP's question.  The suburbs are NOT dead!

    0Reply
  • Shane Pearlman
    OP
    Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes
    11y

    That is a really great reference @Richard C. !! 

    So far all my personal investment is in Seattle / SF Bay Area, which is the perspective that drove my question.  

    I do wonder if past performance is an accurate predictor of future results. In 2nd tier markets, do those trends continue, or will the urban planners figure out a way to inject vitality into their urban centers, following in the path of 1st tier cities like chicago, seattle, sf, dc ...

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  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Shane Pearlman:

    That is a really great reference @Richard C. !! 

    So far all my personal investment is in Seattle / SF Bay Area, which is the perspective that drove my question.  

    I do wonder if past performance is an accurate predictor of future results. In 2nd tier markets, do those trends continue, or will the urban planners figure out a way to inject vitality into their urban centers, following in the path of 1st tier cities like chicago, seattle, sf, dc ...

     Granted past performance does not guarantee future results.  But your entire premise is based on the same logic.  You are projecting future results based on the performance of the immediate past.  And immediate past that includes the worst economic downturn since the Great Depression.

    It is entirely possible (and even likely) that as the youngest workers finally get on their feet and start to catch up financially, they will hear the siren song of the suburbs just like all those before them.

    I have no real dog in this fight.  I live and invest in a rural area unlikely to markedly grow or shrink.  But I have read a lot of New Urbanist wishful thinking over the years, so I'm skeptical.

    2Reply
  • Bret L.
    Elizabethtown, PA · Member since 2014 · 8 posts · 8 votes
    11y

    I disagree, I know plenty of people in the PA area (including myself) that want to get as far away from the city as possible.  I enjoy clean air, open space, quiet nights, food from my garden, my fire pit and I wouldn't trade that for anything the city ever has to offer.

    1Reply
  • Kimar Abdul-Samad
    Baltimore, MD · Member since 2015 · 13 posts · 5 votes
    11y

    What's the point in trying to live in a suburb with no grass?  People are realizing that the place has been a reluctant desert the entire time.  

    1Reply
  • Vincent Crane
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    11y

    This is a really interesting post. Obviously it depends on the city, and so many U.S. cities are so different in terms of their layout, it entirely depends. But one thing is true across every city of mid to large size, traffic has become terrible everywhere. Even in cities that were small-mid tier cities like Raleigh, Charlotte, used to be driveable. Now the traffic is absolutely awful even in those places. In Atlanta, it's gridlock anytime around rush hour and take an hour to go 10-15 miles. It's getting harder to want to live in the suburbs when you have to commute an hour to work when it used to take 15-20 minutes.

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  • Tiffany Alexy
    Real Estate Broker · Durham, NC · Member since 2014 · 236 posts · 168 votes
    11y
    Originally posted by @Vincent Crane:

    This is a really interesting post. Obviously it depends on the city, and so many U.S. cities are so different in terms of their layout, it entirely depends. But one thing is true across every city of mid to large size, traffic has become terrible everywhere. Even in cities that were small-mid tier cities like Raleigh, Charlotte, used to be driveable. Now the traffic is absolutely awful even in those places. In Atlanta, it's gridlock anytime around rush hour and take an hour to go 10-15 miles. It's getting harder to want to live in the suburbs when you have to commute an hour to work when it used to take 15-20 minutes.

     Agreed.  Having lived in both Raleigh & Charlotte, I think Charlotte traffic is worse, but I see Raleigh getting there in due time.  Charlotte has the LYNX Light Rail but Raleigh doesn't have anything in terms of public transportation other than some bus lines (downtown Raleigh circulator, and Raleigh->Durham->Chapel Hill are what come to mind).  I believe a light rail connecting Durham and Chapel Hill has been greenlighted, but who knows how long that will take before it's actually completed.  Probably 15-20 years.  There was also talk about Raleigh->RTP as a light rail, but I don't think that ever got approved.

    These small-mid sized cities grow so fast that it's hard to keep up.  I drive from Raleigh to Durham frequently, and I've found that commuting during off peak hours helps.  So I try to go into the office early and leave early.  But of course there are still days that I end up getting out late or having to run errands before going back to Raleigh and get stuck in traffic, but at least it's not every day.

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  • Kevin PolitePro Member
    Investor · Decatur Atlanta, GA · Member since 2011 · 611 posts · 232 votes
    11y

    Never understood why this questions makes it an either/or.  The suburbs aren't dead and aren't likely to die anytime soon, but in many places they are changing. They are not the same ole suburbs. This is based on Atlanta and most every city in the 'burbs is trying to emulate smaller downtowns like Decatur, GA. Woodstock, Alpharetta, Duluth, Suwanee, Roswell are all cities synonymous with the heavy growth of the suburbs in Atlanta from the 80's-10's, but every single one of those cities is developing a town center, city center or some other similar name. Intown Atlanta, like most other major cities hasn't necessarily seen in increase in population and I've looked for supporting data, but from my knowledge of Atlanta, the intown areas median incomes are increasing like crazy. Young, middle age and few seniors are moving back into the city while the lower income population is being displaced, so thus, not a great increase in population except for the Midtown, Buckhead and to some degree Downtown where they are building high rises on every available corner. Someone mentioned Charlotte and I was there recently for a weekend and stayed "uptown" as it's called. I drove around in the surrounding areas and there was tremendous renovation going on in the surrounding areas. I think this is happening in most newer cities like Denver, Atlanta, Dallas, etc.

    The Beltline is transforming Atlanta. I went on their tour with a group of investors and you should see the changes that are happening along the parts that have been built. I have a client that is buying because their 2br apt. which is literally next to the beltline is going from $2200 to $2700. I would kill to not blink an eye and know I could get a nearly 20% increase in one year. 

    Also, I think the Millenials are not going to do the same thing as us Boomers did. They look at the market and housing diffeerently, at least the ones that hate traffic and like intown living.  Many don't have cars or use Uber and want to live near transit. It's a whole new mindset. Most of these areas don't have good schools so many will pay for private or advocate for charter schools.  

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  • Gregory Walter
    Charlotte, NC · Member since 2014 · 101 posts · 40 votes
    11y

    There is very little traffic in Charlotte these days. Even at the peak of rush hour there are only a few spots in town that slow down significantly. I've never experienced bumper to bumper or stop and go traffic here outside of heading into a concert at the PNC pavilion. Afraid to become Atlanta, I think we've stayed ahead of it pretty good.

    I don't think you can predict whether cities or suburbs will grown faster.  It depends on two many factors.

    Originally posted by @Tiffany Alexy:
    Originally posted by @Vincent Crane:

    This is a really interesting post. Obviously it depends on the city, and so many U.S. cities are so different in terms of their layout, it entirely depends. But one thing is true across every city of mid to large size, traffic has become terrible everywhere. Even in cities that were small-mid tier cities like Raleigh, Charlotte, used to be driveable. Now the traffic is absolutely awful even in those places. In Atlanta, it's gridlock anytime around rush hour and take an hour to go 10-15 miles. It's getting harder to want to live in the suburbs when you have to commute an hour to work when it used to take 15-20 minutes.

     Agreed.  Having lived in both Raleigh & Charlotte, I think Charlotte traffic is worse, but I see Raleigh getting there in due time.  Charlotte has the LYNX Light Rail but Raleigh doesn't have anything in terms of public transportation other than some bus lines (downtown Raleigh circulator, and Raleigh->Durham->Chapel Hill are what come to mind).  I believe a light rail connecting Durham and Chapel Hill has been greenlighted, but who knows how long that will take before it's actually completed.  Probably 15-20 years.  There was also talk about Raleigh->RTP as a light rail, but I don't think that ever got approved.

    These small-mid sized cities grow so fast that it's hard to keep up.  I drive from Raleigh to Durham frequently, and I've found that commuting during off peak hours helps.  So I try to go into the office early and leave early.  But of course there are still days that I end up getting out late or having to run errands before going back to Raleigh and get stuck in traffic, but at least it's not every day.

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  • Vincent Pellegrini
    Venice, FL · Member since 2016 · 2 posts · 0 votes
    9y

    Just touching base on this topic. You were not alone in your assessment a couple of years ago. Development and supply has been so biased to the Core Urban areas that we have seen a lack of supply in most suburban markets. This has lead to investor friendly vacancy rate and rent rate increases in these tertiary markets. 

    Here is an interesting dialog on this topic released this week:

    https://itunes.apple.com/us/podcast/the-commercial...

    Thanks!

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    Vincent Pellegrini I've always had an "inner core" bias. I don't care if the area isn't A+. I'll buy near the hip areas and wait for them to improve. In houston that means "inside the (610) loop". That's where every property I own is (save 5 or 6 random single family homes from my early days). I'd rather live in a "bad" area that was centrally located than a good area out in BFE. I hate the burns. So my investment strategy follows.
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