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Musings Report 2017:15 4-15-17 Who Will Live in the Suburbs if Millennials Favor Cities?
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Who Will Live in the Suburbs if Millennials Favor Cities?
Following up on a topic Gordon Long and I mentioned in our recent program on the Millennial generation's impact on the global economy, Kerry Lutz and I discuss the future of suburbs in this podcast: Whither the Suburbs?
Longtime readers know I follow the work of urbanist Richard Florida, whose recent book was the topic of Musings #9 (3-4-17) Are Mega-Cities the Incubators of Global Solutions?
Florida's thesis--that cities are the primary incubators of technological and economic growth--is well-supported by data that shows that the large urban regions (NYC, L.A., S.F. Bay Area, Seattle, Minneapolis,etc.) generate the majority of GDP and wage gains.
Cities have always attracted capital, talent and people rich and poor alike. Indeed, "city" is the root of our word "civilization." So in this sense, Florida is simply confirming the central role cities have played for millennia.
More recently, Florida has addressed the rising wealth/income inequality that is making desirable urban areas unaffordable to all but the top 10% or even 5% wage earners. This concerns him, because vitality is a function of diversity: a city of wealthy elites paying low wages to masses of service workers is not an economic powerhouse.
What happens as buying a home in a desirable city becomes out of reach of all but the most highly paid tranche of young workers?
The larger question is: what happens to home ownership as housing prices continue higher while the next generation's wages remain significantly lower than previous generations' incomes in their youth?
Millennials are typically earning less than Baby Boomers and Gen-X did in their 20s and 30s, and if this continues--and history suggests it will--then how many Millenmials will be able to buy a pricey house?
One consequence of stagnating wages and rising home valuations is a "nation of homeowners" morphs into a "nation of renters."
The other big question is: if Millennials aren't earning enough to buy pricey homes, who is going to buy the tens of millions of houses Baby Boomers will be selling as they downsize/move to assisted living or retirement homes?
This question is keenly relevant to suburban homes, especially those far from employment centers in cities. Though data on this trend is sketchy, it seems Millennials strongly favor city living over exurban/suburban living.
(This could change if Millennials start having lots of children, but to date small bungalows in urban regions appear big enough for families with two children.)
Personally, I can't think of a single individual in their 20s or 30s that I know personally who has bought a house in a distant suburb. Everyone in this age group has bought a house in an urban zone. Not a high-rise condo in the city center, but a house in a ring city near public transport.
Anecdotally, Millennials seem more willing to make the sacrifices necessary to live in the urban core, either by renting rather than buying a cheaper suburban home, or by purchasing a modest bungalow on a small lot rather than an expansive suburban home on a big lot.
In a turn-around from the postwar era, which saw a mass exodus of the middle class from city centers to suburbia, the upper middle class is moving back to urban centers and the lower-income populace--once the urban poor--are being pushed out to the suburbs. We can now speak of the suburban poor.
To some degree, the suburbs have become victims of their own success. Long commutes in heavy traffic are the inevitable result of the vast expansion of suburban subdivisions, shopping malls and business parks. These killer commutes detract from the desirability of suburbs, especially to auto-agnostics of the Millennial generation, who exhibit low enthusiasm for auto ownership.
Rather than symbolizing freedom, auto ownership is viewed as a burdensome necessity at best.
If we overlay these trends (assuming they continue into the future), we discern the possibility that marginal suburban housing could crash in price and become suburban ghettos of isolated low-income residents.
The Pareto Distribution may play a role in this transformation. Should 20% of the suburban housing stock fall into disrepair, that could trigger the collapse of valuation in the remaining 80%.
Not all suburbs are equal. Those with diverse job growth and strong tax bases to fund city services may well act as magnets much like small cities. Those with few jobs and long commutes are less desirable and have smaller tax bases to support services.
The asymmetry between Millennial wages and the soaring cost of housing cannot be bridged or ignored. If these trends continue, only the top tranche of highly paid young workers will be able to afford housing in desirable areas. Given a choice between affordable ownership in a small city or in a distant suburb, Millennials may well choose the affordable small city rather than the exurb or suburb.
These trends promise to remake the financial geography of housing in cities (large and small) and suburbia.
Summary of the Blog This Past Week
The U.S. and China: Why the Sudden Convergence on North Korea? 4/14/17
Millennials Are Homesteading, Buying Affordable Homes, Building Community 4/13/17
Millennials Are Abandoning the Postwar Engines of Growth: Suburbs and Autos 4/12/17
Who's Playing The Long Game--and What's Their Game Plan? 4/11/17
The Media's Missing the Point: Syria, Empire and the Power of Signaling 4/10/17
Best Thing That Happened To Me This Week
Spotted new lychee fruit forming on two old lychee trees under our care. Hope to have lychees by late summer.
Market Musings: Revisiting Gold
When we last checked in on gold in January, we found some positive technicals. These have indeed played out in gains, and now gold appears to have cleared the resistance noted in January (the 50-week moving average).
Now let's look at a recent chart.
MACD has moved up to the neutral line and this presages further gains, as major uptrends tend to strengthen when MACD moves above the neutral line.
Stochastics are overbought but this signal can plateau for some time--a sign of continued strength.
Why is gold moving higher? Theories abound. Some note that gold and the Japanese yen move in lockstep; others point to geopolitical tensions rising.
I am agnostic about causes but follow gold and oil as two key indicators of global growth, sentiment and risk appetite/aversion.
It looks like the next resistance for gold is the round-number $1300. If it clears that, a re-test of the recent high $1375 is back in play.
Alternatively, if gold fails to clear $1300 and dips back below the 50-week moving average, we'll have to reconsider the uptrend thesis.
In the meantime, we can see if the yen-gold correlation holds.
From Left Field
Canada: Wild Housing Speculation Drives Entire Economy
Conspiracy with and Without Conspirators (via Lew G.) Long form account of the Deep State, worth a careful read. The author has an interesting expertise in Japanese politics.
What in the World Is Causing the Retail Meltdown of 2017?
The Dark Secret at the Heart of AI: No one really knows how the most advanced algorithms do what they do. That could be a problem.
The Snarxist Temptation --snark is always tempting, but it goes nowhere.
Digital globalization: The new era of global flow --summary worth a read; digital economy doesn't need shipping containers...
The Dangerous Academic is an Extinct Species -- rebels not wanted...
Crimea: from world war 0 to world war III -- always start with energy and work backwards from there...
Razing the Hamptons (via Joel M.) -- too much easy money leads to this sort of excess...
Pharmaceutical Overlord Plotted To Destroy Cancer Drugs To Drive Up Sale To 4000% (via John F.) -- why are we not surprised?
Where machines could replace humans—and where they can’t (yet) (via Laserlefty) -- excellent chart and exploration of a complex subject....
Google’s AI Is Changing the Way a 3,000-Year-Old Game Is Played (via Steve K.) -- the game is Go....
"The future is already here – it's just not evenly distributed." William Gibson (via GFB)
Thanks for reading--
charles
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