Today’s renters and homeowners want to live in bustling neighborhoods with good access to amenities and mass transit. “It’s all about urban,” said Wendy Rowden, managing director for Jonathan Rose Companies, speaking at a session at ULI Fall Meeting.
Strong demand for housing is pushing prices up in the strongest urban markets and also supporting dense, urban-style redevelopments in suburban areas. “There are more young people who want to stay in cities,” said Bruce A. Beal Jr., president and general partner, Related Companies.
Some suburban areas also are becoming more urban. Toll Brothers is creating new, densely developed “urban” neighborhoods and town centers far from the urban core. “We do urban housing in farm fields,” said Robert I. Toll, executive chairman for Toll Brothers Inc. “All of a sudden there is a new city there.”
Older and less dense communities such as White Plains, New York, and Trenton, New Jersey, are allowing developers to build new density near existing mass transit to help reinvent and reinvigorate their downtowns. “Those are terrific opportunities,” said Rowden.
More Households to Grow Demand for Housing
Both urban and suburban areas are likely to benefit from strong demand for housing overall. In particular, in the years after the financial crisis, far fewer young people set off on their own to form households. Instead, they continued to live in the homes of their parents or in college dormitories. Eventually, many of these young people are likely to move out into their own homes or apartments, providing a big boost to the demand for apartments.
“The number of people coming to the U.S. and being born in the U.S. has not slowed down,” said Toll. “So sooner or later, something’s got to give. We look forward to a lot better [demand], because of this delayed household formation.”
Not all of these young people are likely to move to top urban neighborhoods when they finally hunt for their new apartments—even if they want to. “I don’t think they’ll be running to Williamsburg. Every kid in the world—not just [in] the U.S., but [also] France, Germany—they all want to live in Brooklyn,” said Toll, referring to a popular neighborhood in that New York City borough, and that has made many urban neighborhoods impossible to afford on a middle-class income.
Some young families may also move out to the suburbs for the sake of good public school systems or more living space. “Don’t think that the suburbs are dead,” said Beal, even though his company, Related, focuses much of its development activity in urban areas.
Some of these families may prefer the flexibility of renting a suburban single-family home rather than buying. “They look at the suburbs, but they don’t want to buy. They want to rent,” said Wendy. “I see that as an opportunity.”
Rent versus Own
The balance between renting and owning a home is also changing as the housing market heats up and wealthy buyers bid up prices of for-sale housing in top markets. “Rents are way too low compared to sale prices,” said Beal. “The gap is widening.”
The high cost of condominiums in urban areas is driving up the cost of development sites. That makes it difficult to build anything on these prime sites but super-luxury condominiums. Related is now building 3,500 units of housing in New York City, and 350 of those will be condominiums. “Why do you build condos?” said Beal. “Because the land is too expensive and you can’t build rentals. . . . It is hard to make rentals work.” To develop more rental apartments, Related is now mixing different types of construction into its projects that can help support the rental apartments, such as condominiums or even hotels.
Developers prefer to build rental apartments, because the market for rental—even luxury apartments—can be deeper than the market for condominiums. “Rental is safer than a condo job,” said Toll.
Government policy still often prioritizes homeownership, even in the aftermath of the financial crisis. Members of the panel were critical of a proposal from the Federal Housing Finance Agency to make mortgages more available with downpayments as low as 3 percent. “Why do we want to make mortgages so ridiculously affordable?” says Toll. “Three percent down? It doesn’t make any sense.”
Beal also worried that federal officials may be shaping federal policy around homeownership, inadvertently discouraging rental housing. “It’s okay to rent,” he said.
In addition, local housing officials now demand that new development include a great deal of sustainable design ideas. “Building codes now incorporate so much of what was cutting-edge,” said Rowden. “It’s become what everybody does.”
Market forces also help support green building. Residents broadly prefer to live in housing that is energy-efficient and sustainably developed. “The client likes it,” says Toll. “But will they spend $20 extra a month? No way!”