Arthur C. Nelson is presidential professor of city and metropolitan planning at the University of Utah, where he is also director of the Metropolitan Research Center, adjunct professor of finance and co-director of the Master of Real Estate Development Program. His book, Reshaping Metropolitan America, looks at development trends in the coming decades and the opportunities they present for a more sustainable, economically vibrant future.
Here, Nelson talks about how the country will accommodate some 25 million new households between now and 2030, and how the ways we build for population growth will look different than they did in the recent past.
Next City: In your book, you are looking at the ways that changing demographics and a variety of different economic and social trends will change the way the cities look by 2030. Who do you think will be the winners and losers of this demographic change?
Arthur C. Nelson: That depends. You can be a winner if the housing market and local government officials will allow you to be a winner. What I mean is that there is going to be a substantial increase in demand for housing for seniors and for young professionals who cannot afford to buy a home right now.
If local governments can facilitate the change through financing mechanisms, and builders can also seize the opportunities, then those demographic groups can become winners. If those two things don’t happen — if the development community is unable to step up and meet the demand, maybe because it is local governments who are slow to respond — then those very same demographic groups will be the losers.
NC: That’s a good point. It’s not like it’s destiny for anyone. It is really just a matter of policies on how they make winners and losers.
Nelson: I think there is another group that is probably a for-sure loser. This group would be the owners of single-family detached homes on larger lots in the suburban fringe and exurban areas of slow-growing and even non-growing metropolitan areas. Or even in growing metropolitan areas. For example, in the suburban fringe of metropolitan Atlanta, those homes have lost about half their value from the high in 2006 to last year. Those values probably aren’t going to come back, at least anytime soon, and certainly will never come back on an inflation-adjusted basis. Owners of those homes have lost value, lost equity. Many tens of thousands, maybe millions, of homeowners are under water. They owe more on the house than what the house is worth. With the sweeping demographic changes taking place, they are going to be the losers for the next decade or two, or even beyond.
NC: One common criticism of trying to push the U.S. toward more compact land use, transit-oriented development and dense urban development is that land prices become more expensive when there is greater demand, and you aren’t allowing people to sprawl. How would you respond to people who say that it is too expensive and that there is a market that sprawling exurban neighborhoods are serving?
Nelson: Looking back between 1990 and 2010 we added about 25 million new households and we built about 21 million new homes on detached lots, mostly in the suburbs. And that met the needs of mostly the Baby Boomer generation, who were at the peak of their housing demand with large families, oftentimes dual incomes, suburban communities and developers who provided a very nice product for the price to them. Fast forward to between 2010 and 2030, and demands for that type of housing has shrunk to five million people in that demographic group. Yet [the country] will still add the same number of households, roughly 25 million.
So instead of having 20 million new demands for the detached homes on suburban lots, we will have 20 million new demands for something else. That will put the pressure on the market to respond, so the natural thing would be for communities to increase the density of residential areas, encourage mixed uses, take advantage of transit-oriented developments.
And we know that markets respond to those things. The number of economic studies that have looked at how housing markets respond to the availability of TODs is just astounding. We just did a study that is going to be coming out this fall for Transportation Research Record showing that there is a premium per square foot for apartments up to 1.25 miles away from transit stations. That tells us that the market for multi-modalism, accessibility, and higher density is strong. It is probably underserved, and we are probably five to 10 years away from really ramping up to meet that growing need.
NC: The latest Case-Shiller report came out saying that housing is surging and that there is this resurgence in the housing market. Will the housing boom will be different this time around? What are the things that need to change so that we can kind of take advantage of this opportunity to potentially be building better cities?
Nelson: [Economist Robert J.] Shiller himself in the New York Times business section cautioned that the so-called American dream could still end up being a nightmare for prospective new homebuyers. He uses his own data to raise a caution about some of the emerging trends.
Secondly, though I am finding from the developers I know across the country that the apartment market is surging for a lot of reasons, but one of which is that people would rather hedge their bets and not buy. They would rather pay a little more rent to be in a nice upscale apartment unit but not have to take care of the yard or the building.
A recent report on building permits indicated that apartments were close to or equal to single-family detached homes in terms of new units permitted. And that is a phenomenal shift in just, maybe, five years. But that may be the trend we will be looking at until the year 2030.