Friday, May 16, 2014

When asking where people want to live, consider where housing is being built

By Matt DeVeau, Senior Project Associate.

The narrative should by now be familiar: cities are on the rise and suburbs are suddenly playing catch-up as the preferences of Americans – millennials in particular – shift toward housing options in dense mixed-use communities. Within the past month alone, the The New York Times and Time Magazine have each offered up a variation of this theme. But, naturally, not everyone agrees. Skeptics contend that the trend is overstated and/or a temporary condition that will subside as the housing crisis fades and millennials start families and flock to suburbs with strong school districts.

Who is right? If survey data is to be believed, consumers seem to want to live in more compact, walkable, mixed-use places (as previously covered in this space by Jim Vaughan). But the trend is difficult to follow through population and migration trends because these statistics tend to lag reality by a year or more and are often not available at sub-county levels, making fine-grained analyses difficult. And of course there is the matter of past results not guaranteeing future performance. All told, the picture is just murky enough to where both sides can make reasonable arguments.

But in economic development, the debate is far from trivial. Quality of place plays an enormous role in the attraction and retention of talent, and to be competitive, communities must offer the types of environments and housing products that top workers desire.

With that in mind, economic development professionals should endeavor to gather as much information as possible on the topic to help inform decisions. One potential way to do this is to consider where new housing units are being built within a region as a gauge of where the market is moving.

Fortunately, this is relatively easy to do with data from the U.S. Census Bureau’s Building Permits Survey. The survey provides monthly and annual totals of new housing units authorized by building permits – both single- and multi-family – for a variety of geographies, including those at the county and sub-county levels. Even better, the survey has a relatively short lead time (preliminary data are already available for March 2014). Best of all, HUD’s State of the Cities Data Systems (SOCDS) provides a quick and easy way to access statistics going all the way back to 1980.

To illustrate how this information can be useful, I conducted a brief analysis of the Metro Atlanta area. I compared the proportion of residential units approved in the City of Atlanta (shown in green on the following map) to the MSA as a whole (which includes all 29 counties shaded in red). 

Map of the Atlanta MSA

Atlanta has a reputation for sprawl and the city itself is small, comprising just 1.6 percent of the region’s total area. Not surprisingly, a large majority of the building activity has occurred – and is occurring – outside of the very core of the region. But the gap is narrowing. In 2013, the city captured a larger share of building activity than it has in any year since 1980, with 22.8 percent of all residential units being permitted within its limits. That’s a rather large share for such a small area. And as the following chart shows, this strong performance may be a part of a more long-term trend.

Source:U.S. Census Bureau

In the years leading up to the real estate crash, Atlanta’s share of building permit activity showed steady improvement, but the trend rapidly reversed with the onset of the Great Recession. This is likely due to the fact that the overwhelming majority of units permitted within the city are in multi-family developments that require institutional financing to build (multi-family developments accounted for 91 percent of permitted units in 2013). Such financing was virtually unavailable immediately following the financial crisis. But between 2011 and 2013, the number of units permitted within the city increased by an astonishing 652 percent compared to a 137 percent growth rate in all other areas of the region.

There are caveats, naturally. In terms of raw numbers, there were far fewer units permitted in both the city and the region in 2013 relative to the pre-recession boom years – the city’s gains have been relative. This information also says nothing about how well these developments are doing, who is living in them, or whether the trend will continue. Real estate is cyclical, and Atlanta is in the midst of an apartment boom that will almost certainly fizzle at some point in the near future.

But we can say that City of Atlanta is attracting the region’s residential development growth at an unprecedented level. From that we can infer that developers and investors increasingly believe that these are the types of environments that people want, and that’s something that economic developers in the region ought to know.