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A Tale of Two Cities

By August 28, 2020 No Comments

“It was the best of times, it was the worst of times…it was the spring of hope, it was the winter of despair….” So wrote Charles Dickens in his epoch novel, A Tale of Two Cities; a story about the French Revolution. The book talks of being required to “kneel down” to avoid physical punishment and of “daring burglaries by armed men and highway robberies taking place in the capital itself every night.”

As I was rereading Dickens’ novel, I was struck by the similarity of these times in the United States of America. Not that I think we’re headed for a French Revolution as in Dickens’ day or another Civil War, but today’s social unrest has created some dissonance in the housing market between the inner cities and the suburbs.

The protests, some peaceful and some not, have turned many American cities into battlegrounds of ideologies that have made inner-city living more dangerous and difficult. Multiplying this unrest with the insecurity and suffering through a national pandemic coupled with the high cost of living in the inner-city has caused many, primarily millennials, to rethink their housing needs.

This shift in housing demand has created some winners and losers. The winners appear to be “properties in the suburbs and in affordable regional markets.” The losers, on the other hand, have been properties located in the Central Business Districts of many of the major cities. The “shifts in demand have sent the overall vacancy rate in downtown CBD communities sharply higher to nearly 10% (9.6%),” while suburban vacancy has actually fallen to 6.8% in recent months. Cities posting the largest decreases in CBD occupancy include Nashville, Boston, New York, Los Angeles, San Francisco, Seattle, and Portland.

On the flip side, homeownership rates in the suburbs have been soaring. Homebuilders can’t build affordable housing fast enough. The homeownership rate has increased from 65.3% in the first quarter of 2020 to 67.9% in the second quarter of 2020. Even though question the accuracy of the U.S. Census Bureau’s methodology in collecting the data, it is undeniable that demand for single-family housing has dramatically increased, especially among millennials.

This demographic shift in housing has been caused by a number of factors: (a) a flight to safety by millennials from the cities to the suburbs due to civil unrest; (b) the quarantine-like living conditions of a dense population and close-quarters social environment; (c) a desire by many to have more private space as they have learned to cope with working from home; (d) significantly lower down payments and interest rates for homebuyers; and (e) millennials beginning to start families which creates an appeal for single-family living.

In all, as a result of current circumstances, many have reason to flee the inner cities and find refuge in the suburbs. It is truly a “Tale of Two Cities.”