Urban Growth and Housing Affordability: The Conflict

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Susan M. Wachter's presentation for the Penn IUR conference

"Shape of the New American City"

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  • Can and shd happen policy shifts that will revitilazie urban america—newly nobel prize laureate—job opp from knowledge economies—bright lites of cities but who will be able to live in the revitalized cityLOCUS OF OPPORTUNITY –ACCESS--the growing city with social inclusion
  • Cities that have already transformed themselves—so that they compete in the 21st century—from manufacturing to knowledge clusters, hi skill hi touch centers of activity—trends in these cities both illustrative for economic transformation and the challenge for affordability as we will see, looking forward, beyond the current crisis to future prospects
  • We are already building on our buildable land as indicated by this map of density where land is flat near costs and rivers, settlement patterns have gotten denser even with the build out of suburbs and loss of population in some urban centers overall the us is likely to get denser yet with the 100 million plus new americans in the coming decads and with density comes higher prices for housing.
  • In 1990 there were 15 growing cities and 15 declining cities.
  • Not all cities have transformed themselves, continue loss pop and jobs—phila, and some have grown steadily---WITH VERY DIFFERENT CONSEQUENCES FOR HOUSING AFFORDABILITY AND ACCESS TO JOBS
  • While most cities have been losing out to their suburbs, and many have continued to losE population, thus bringing down the national average, reinvented cities that have taken advantage of the new economies of urban areas—bright lites and knowledge clusters—have substantial gains in population—and many in rents and prices also: lets look at the national data---AND HOUSING RENTS AND PRICES GAINS HAVE BEEN MODERATE LESS THAN INCOME GAINS
  • IBEFORE THE DIVERGENCE OF FORTUNES IN 1970S RENTS AND HOUSE PRICES WERE REASONABLY RELATED TO INCOMES IN MOST CITIES, BUT AFTER THE TRANSFORMATION OF THE SUBSEQUENT DECADES, IN GROWING AND TRANSFORMING CITIES, WITH SOME EXCEPTIONS, HOUSE PRICES IN PARTICULAR, RENTS ALSO BECAME UNAFFORDABLE ALONG WITJ AND AS A CONSEQUENCE OF GROWTH
  • Used in real estate analytics to point to growth cities
  • From 2000 to 2006 the following turnaround cities lost population—reversed causation due in part to
  • Declining opportunities and availability of lower cost housing, leading to divergence by income of cities. High price cities driving out those who cannot afford housing—can be seen in the income structure itself
  • Urban Growth and Housing Affordability: The Conflict

    1. 1. Urban Growth and Housing Affordability: The Conflict<br />Susan M. Wachter<br />Richard B. Worley Professor of Financial Management<br />The Wharton School<br />Co-Director, Penn Institute for Urban Research<br />University of Pennsylvania<br />Shape of the New American City<br />Penn Institute for Urban Research<br />October 24-25, 2008<br />
    2. 2. Introduction: Context<br />Metropolitan spatial structure in the next half century: population growth and potential large scale policy shifts<br />Advantage of cities: clusters that give rise to economies of scope and scale drive city growth<br />Challenge: Tension<br />THE REINVENTED/NEW AMERICAN CITY <br />WHO WILL BE ABLE TO AFFORD TO LIVE IN THE GROWING CITY?<br />
    3. 3. Urban Growth and Housing: Historical Trends<br />Urban growth trends with focus on turnaround cities <br />illustrative of the potential for city growth <br />illustrative of the challenge for affordability<br />Urban growth and social inclusion: the tension<br />Looking forward: Current crisis impact and future prospects<br />
    4. 4. http://www.census.gov/geo/www/mapGallery/images/2k_night.jpg<br />
    5. 5.
    6. 6. Urban Growth and Decline, 1980 & 2000<br />View From 1980<br />View From 2000s<br />
    7. 7. Turnaround Cities: Why and How?<br />Reinventing their economic base<br />Public governance: crime<br />Push effects: environmental containment<br />
    8. 8. National Data<br />Growth of rents and house prices moderate: 1970-2000:<br /> Rent growth .7% and home prices 1.2% annually<br />Urban rents most recently have grown faster<br /> Rent growth .5% in cities and .4% in suburbs<br />Urban population increased by 7 million from 1990-2000<br />All US Cities 1970 - 2000<br />Note: All dollar values are in 2005 dollars.<br />
    9. 9.
    10. 10. Turnaround cities: affordable no more<br />While prices and rents were relatively clustered in 1970, by 2000, prices reflected wide disparities in growth outcomes<br />Home prices relatively flat in no growth cities<br />With growth and anticipation of growth, prices rise <br />Prices rise far more than rents<br />In high priced regions, city prices may exceed prices in suburbs <br />
    11. 11. 1970 rent $400-680, price $53-142k<br />
    12. 12. 2006 rent $520-1140, price $93-783k<br />
    13. 13. Capitalization Rates: rents/prices<br />Cap rates averaged across cities ranged from .06 to .08, but across cities range from .02 to .10<br />Cap rates in 1970 ranged from .05 to .13, in 2000 from .04 to .11<br />Low cap rates indicate investors and homeowners expect home prices to appreciate<br />High cap rates indicate investors and homeowners expect slowing growth or declines in home prices<br />Affordability similarly diverges<br />
    14. 14. San Francisco<br /> Boston<br /> New York<br />
    15. 15. Atlanta<br />Philadelphia<br />San Antonio<br />
    16. 16. 1980 Bottoming Turnaround Cities<br />Boston, Indianapolis, New York, San Francisco, Seattle<br />Note: Indexed population calculated by averaging each city’s population relative to it’s 1970 population for each time period.<br />
    17. 17. Cap Rates: Diverging Fortunes<br />
    18. 18. Housing price/urban growth nexus<br />Consequences of urban growth (and lack) for housing prices<br />Reverse causation: Consequences of high housing prices for slowing growth<br />The great separation: constrained v. un-constrained urban areas<br /> e.g. Texas, based on amount of developable land available<br />Where population growth does not drive prices up<br />
    19. 19. States with Growth Management/Land Use Laws<br />http://www.wsdot.wa.gov/environment/compliance/gma_resource.htm<br />
    20. 20. Projected peak-to-trough house-price decline, %<br /> <-20%<br /> -20<-10%<br />-10%<0%<br /> No correction<br />Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO<br />
    21. 21. Housing Price Effects on Growth<br />Housing prices and affordability increasingly a factor in where people live<br />High price cities losing population due to non-affordability<br />Affordability important for growth and for social inclusivity<br />
    22. 22. Incomes in Select Cities<br />
    23. 23. Prices falling more in outlying areas, not result of oil prices rather of credit withdrawal crisis<br />After the crisis, prices will return to trajectory, in growing constrained cities<br />January, 2008<br />September, 2008<br />March, 2007<br />Future Outlook<br />
    24. 24. Long View<br />100 million more Americans in 30 years: Where will they live?<br />Recovering, growing, flourishing cities with potentially stagnant wages<br />Housing affordability challenges in America<br />

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