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Suburbs Over Cities: Housing Shortages Push Millennials Out
Growing affordability crisis in cities led by lack of housing options.
The COVID-19 pandemic sparked intense debate about the future of cities, with some greatly exaggerating the death of urban areas. But cities have been through significant disruptions before and have always managed to bounce back. Nonetheless, the pandemic accelerated some secular changes already underway leading to increased office vacancies and accelerating unaffordability.
Amid high demand for residential housing and lack of demand for office space, cities will need to adapt. A look at recent developments:
Millennials moving out of urban areas and into suburbs to start families due to a shortage of family-oriented housing in cities.
Despite earning more than previous generations, millennials are less likely to own homes due to the increasing unaffordability of cities.
Office vacancies (at their highest levels since the Great Recession) may allow for new housing, but residential conversions are challenging.
Addressing restrictive zoning is an important step towards making cities more affordable, but more needs to be done.
The challenge for policymakers is to incentive more housing construction in cities, improve affordability for individuals and families, and ensure urban areas are inclusive and accessible.
People Want to Live in Cities, But Can’t Afford To
A shortage of family-oriented housing is leading many millennials to move out of urban areas and into suburbs to start families. Although there is a growing movement to loosen zoning rules to facilitate more construction, most new housing is built with singles, childless couples and adult roommates in mind. Addressing restrictive zoning is a crucial first step to making cities more affordable, but it might not be enough. Even in places that have loosened their zoning rules and authorized new housing construction, the overwhelming majority of new units are studios or one- and two-bedroom apartments.
Millennials are the first generation in modern history to believe that they will have a worse standard of living than their parents. The wealth deficit is often cited as proof of this, with young adults owning only 3% of household wealth compared to baby boomers' 21% at the same age. However, when adjusted for inflation and population differences, millennials are tracking similarly to boomers. Home ownership is a key concern for millennials, and despite being more educated and earning more, they are less likely to own a home than boomers. At the same time, cities are becoming increasingly unaffordable.
A new report indicates half of New York City’s households are unable to comfortably hold down an apartment, access sufficient food and basic health care, and get around. The study reveals New York City is facing its worst affordability crisis of the last two decades. Nearly 80% of households that did not bring in enough to meet the minimum cost of living in the city ended up contributing more than 30% of their income to housing. Additionally, the study found that households in all five boroughs needed to be pulling in at least $100,000 to afford housing, food and transportation, and to have a shot at being able to plan for the future.
People Don’t Want to Commute Downtown
A combination of high office vacancies, and the fact that many people do not want to commute into urban areas for work, has created an uncertain future for downtowns across the U.S. Office vacancies are at their highest levels since the Great Recession, standing at 20% in the first quarter of the year. In New York City, 16% of space was empty according to Jones Lang LaSalle Inc.
According to a recent study the value of New York City’s office buildings could tumble $48.75 billion in the coming years. Many of the City's landlords borrowed billions to build, buy and upgrade offices, but now floors of buildings are empty. While larger landlords who own high demand properties may be better positioned to rebound, numerous smaller firms could face considerable strain. About 80% of office leases signed early in 2023 were in top of the market, Class A, properties.
The highest office vacancy rate was in San Francisco at 26%. Underscoring the problem in the Bay Area is the emptiness of its newest transit hub. Opened in August 2018, San Francisco's $2.2 billion Transbay Transit Center, which was built to handle 100,000 passengers a day from buses and trains, currently serves only about 3,895 bus passengers per weekday. This is largely due to the pandemic, which has affected the number of people commuting to work, as well as the fact that there are no still trains. With plans to bring trains to the center, the Transbay Joint Powers Authority has been working to line up $6.7 billion in government funds for a 2-mile tunnel under city streets to the Caltrain station. Elsewhere, Los Angeles and Chicago office vacancies reached 24% and 23.5% in the first quarter.
While high office vacancies may allow for buildings to be converted to residential use, it is a challenging process. In New York City, one developer evaluated some 2,500 office buildings in Manhattan below 96th street and found 323 were suitable for conversion. At just 12%, office conversions face many challenges: structural upgrades, renovations, and zoning laws. Government subsidies, zoning changes, and political will are all necessities for conversions to work. But conversions are no panacea and it is a transformation that will likely take decades. The unique challenges of converting office towers to residential buildings have led to a slow uptake of the trend. While office-to-residential conversions are important, they are only one tool for downtown revitalization.
Regulations are Needed to Densify Communities
The New York State budget is known to be policy heavy. In this year’s budget the Governor included a proposal to build 800,000 more housing units over the next decade. To accomplish this the outer-borough New York City communities and other municipalities with restrictive zoning laws would be forced to increase their housing stock by 3% over three years. Unfortunately, this past week the Governor confirmed all of the housing proposals have been removed from the budget. Despite differing views on whether it was good policy, New York state needs more housing stock.
In recent years, states like California, Oregon, Maine, and Utah have been pushing towns and cities to drop their resistance to new development and take action to insulate tenants from rent increases. This has been in response to the affordable housing crisis that has been plaguing the U.S. California has taken the lead by passing a series of bills that require cities to increase their housing supply and streamline the approval process for new developments. Oregon has also followed suit by passing a bill that eliminates single-family zoning in cities with more than 10,000 residents.
Affordable housing is essential to ensure that cities remain inclusive and accessible for families to afford. Without affordable housing, low and moderate-income households are often forced to live in substandard conditions or are displaced from their communities altogether. High housing costs also have an impact on the local economy, as workers are often forced to commute long distances or leave the area altogether, making it difficult for businesses to attract and retain talent. Access to affordable housing is crucial for ensuring that all residents have the opportunity to thrive.
Cities Need to Find Their Footing
While the past few years have seen significant challenges to cities and downtown areas, with remote work and rising costs making urban living difficult for many, there are reasons to remain optimistic. Cities have been through tough times before and have always managed to adapt and rebound. Policymakers are beginning to embrace the changes brought about by the pandemic, reimagining urban spaces and services to better suit residents’ needs. However, we need to be mindful of underlying issues that continue to make urban living unaffordable and inaccessible for many.
Loosening zoning rules and building more family-oriented housing are crucial steps in making cities more inclusive and affordable, but there is still much work to be done to ensure that all individuals and families can thrive in urban areas.
Any opinions expressed herein are those of the author and the author alone.