The Impact of Urbanization on Real Estate

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The American Dream used to constitute getting married, moving to the suburbs and buying a single-family home for a growing family. But today's generation has forged a new path. For the first time in history, more than half of the world's population resides in cities. One economic study expects that 66 percent of the population, or 2.5 billion people, will reside in urban areas by 2050.

As young people finish school, they are increasingly delaying marriage, kids and mortgages, which had been seen as a rite of passage into adulthood for previous generations. Instead, they are flocking to cities in record numbers in pursuit of career opportunities and a better lifestyle.

The resurgence of cities as an economic center at the beginning of the century has made them a beacon for highly skilled jobs with better pay and benefits than those found in the suburbs. These thriving city centers also offer urbanites the ability to live, work, shop and entertain in close proximity, satisfying their desire for shorter commutes and greater walkability. Another research report revealed that 62 percent of Millennials prefer to live in mixed-use communities found in urban centers.

The predilection for greater amenities and community style living has made apartments more attractive than they have been to previous generations, so Millennials are increasingly swapping mortgages for leases. As a result, the demand for apartments has been strong, and in the last five years rents have increased 20 percent nationwide.

Despite the current push towards cities, the suburbs aren't completely out of fad. Many experts suppose that the deferral of marriage and children has only caused Millennials to put off moving to the suburbs and buying a home. Over time as this generation begins to age, they too will seek greener pastures in the suburbs.

That said, urbanization has had an undeniable impact, and the suburbs are being reimagined. In an effort to bring urban sensibilities and conveniences to these residential areas, there has been a rise in mixed-use developments. These communities allow for better access to amenities that younger generations crave.

A real estate survey by the found that 48 percent of people would rather live in communities with small yards but within walking distance of amenities than live in communities with large yards but they have to drive to all amenities.

As urbanization continues to take hold and drive demand for real estate in cities, analysts believe in the short run that investors and developers in the rental housing sector will be at an advantage.

For those looking to infiltrate the market, it is important to remember that although properties in cities can be a profitable investment not all are created equal. When looking for investment opportunities, identify areas where housing affordability is a barrier to homeownership. In cases where rent is high compared to asking prices, the investment could be lucrative. Also, keep in mind that prospective renters value walkability and access to public transportation. So, look for neighborhoods that are close to bus stops and innovation hubs with high job growth.