Book Review: The End of the Suburbs by Leigh Gallagher

Some people love the suburbs, some hate them, and some haven’t thought much about it one way or another. This book makes you think about it. We personally have lived in the city, we have loved in the suburbs, we have spent most of our marriage intentionally living in “old suburbs” close in, and I long to move back to the inner city. This book solidified that and helped me quantify the reasons why.

Suburbs are described as leafy, low density residential areas. Of roughly 132 million households, almost half are in the suburbs. The suburbs represent the American dream and are the backdrop of many movies and nostalgic memories of the past.

Since the invention of the automobile, suburb population growth has outpaced urban centers in every decade, but in 2011 that trend reversed. The suburbs are currently in decline. People don’t want to live there anymore. Some of the contributing factors:

• The foreclosures and lending changes of the Great Recession has changed the earlier mindset that their home will make them rich. 4.5 million houses were lost to foreclosure, home values dropped 34% (compared to 26% in the Great Depression). People can also no longer “drive till you qualify” to get into their dream house.
• poverty and crime have migrated to the suburbs. Wealth is rushing back to the cities.

• Changing demographics. Suburbs are built for life with kids, and Americans aren’t having nearly as many kids. Baby boomers and seniors are more common in the suburbs than young families – young adults are failing to launch into their own households, people are getting married less and later, and want flexibility in housing. Today’s seniors, however, prefer to age in place, in the same house they raised their kids in. With seniors not moving and millennials not buying, the market is frozen.
• The resurgence of cities. Crime is down, people want to be close to things and a part of a community. The population of people living downtown is booming, including young families.
• The increase in traffic. Time spent in traffic has more than doubled in the past 30 years. IN addition, Americans are driving less. Suburbs gradually spread people farther and farther apart from one another and the things they like to do, making them increasingly reliant on their cars and long commutes. Time on the road steals us from doing other things.
• Miles driven peaked in 2007; teens are not nearly as excited to get their licenses nowadays. It has lost its appeal.
• A newfound hyperawareness of environmental issues. This includes energy, gasoline, space, and resources. Large homes are environmentally wasteful. Less is more now, an “anti-stuff” mentality has emerged in reaction to excessive consumption patterns. The Tiny House movement is an extreme of this. By 2006 the average home was 2,500 square feet, more than double that of 50 years prior. Energy costs are expected to continue to rise. Some predict that cars could become playthings for the rich in the future.
• People are actively seeking options to be less auto dependant, to help their health, their relationships, and their finances. Many people want healthier communities where it is natural to walk – safe places to walk, bike lanes, green spaces, better air quality, etc. In 1969 roughly half of all children walked or biked to school, today that figure is less than 15%, and childhood obesity is skyrocketing.
• Milllennials, nicknamed Generation Rent plan to live in an urban core. They don’t want lawns to tend, extra “museum” rooms, or long commutes. They want space to entertain, a kitchen to use, and flexibility to move.

The book describes the demand change as a tectonic shift in where and how people are choosing to live.

Because the suburbs are relatively low density, they don’t generate as much tax revenue. Because they are spread out, the cost of maintaining the infrastructure is more. The model is unsustainable once growth slows down. There are also fewer social services in the suburbs; the safety net for the poor is patchier and spread thinner.

There is a movement called New Urbanism, with many of their principles seeping into mainstream development: narrower streets, a town center, mixed use properties (commercial, residential, different housing types and sizes), houses close to the street with big porches to foster community, car access from the alley, small backyards traded for nearby parks, and a high walkability score.

How the topic relates to real estate investing:

• Home values hold up better in cities and towns close to urban areas. Suburban values hold up better if even the slightest urban-esque features exist.
• Builders have traditionally done most of their business building in the suburbs – big, ordinary suburban houses. Today they are trying to urbanize the suburbs. While some will fight to maintain the status quo of suburbs, it’s more likely that there won’t be enough urban properties to meet coming demand.

• Several successful builders have shifted their focus to smaller houses and more urban developments. Americans still can’t quite stomach the term smaller, so the marketing campaign is focused on “right sized”, emphasizing a more compact and functional floorplan. Even retailers are rushing to get smaller – Target’s urban City stores are a great example.
• Some suburbs impacted by the housing crisis will never come back as desirable places to live. The book predicts a surplus of lots that are on a sixth of an acre or more by the year 2025. There is likely a market in finding creative second lives for unwanted properties, such as is happening with foreclosed subdivision mansions. The book discusses converting abandoned suburban homes to multifamilies, offices, storage facilities, and artist studios.
• Properties that are not as dependant on vehicles to get to shopping and services could likely be a wise investment to cater to changing demand. Properties that are dependent on a vehicle to get anywhere could be a risky investment. It probably makes sense to pay attention to the walk scores of properties. My neighborhood rates a measly 31 out of 100, but I am still intentional about walking several miles a day. Research has shown a link between a neighborhoods walkability and it’s property values.
• There is a proposal for a new mortgage that would factor transportation costs and location into the cost of home ownership. The buyer has a better loan if the home is in an efficient location – close to public transport and conveniences. Fannie Mae participated in testing the plan; mortgages in location efficient places have been shown to default less. This would further change demand patterns.
• Along similar lines, HUD has long talked of rating homes for affordability, looking at energy efficiency and location factors.
• Pay attention to access to public transportation when evaluating properties. A quote from the book is “cities without adequate public transportation are going to be the ones that are really crewed over in the future”. Seattle is near and dear to me, and is growing rapidly right now, but is fathoms behind on solving transportation issues.
• At the extreme, communities not near waterways (think Las Vegas) could become desolate. If energy prices become so high that goods cannot move by semi trucks and items need to be produced hyper locally, the future would involve dense villages and cities with suburbs being converted to farmland. In this scenario real estate investors would want to own in dense self sufficient areas and not own in the suburbs. Of course, at this post gas prices are a t a 6 year low!
• While it is sometimes difficult to get zoning and permits for mixed used properties, they seem to be the wave of the future. Also, while many houses are getting smaller, there is a subset niche that is getting larger due to being multigenerational housing. Granny flats or larger houses can accommodate the twentysomethings still living at home, aging parents, or extended immigrant families with the custom of living together.

This book was really interesting. It will be interesting to see if people will embrace living in a community with less privacy, less space, and where neighbors are no longer all of the same class, income, and age group. Regardless, there will need to be broader mix of choices to meet the demands of a more diverse population.