FEATURE ARTICLE, APRIL 2009

MULTIFAMILY LIVING AND NEW URBANISM
A look at why many investors are seeking multifamily communities that capture the New Urbanism movement.
Mark Alfieri

Approximately 83 percent of America’s population resides either in a metropolitan area (defined as a city with more than 50,000 residents) or its surrounding suburbs, according to Praxis Strategy Group’s analysis of 2006 census and labor statistics. The biggest population growth nationwide is occurring in urban hubs in the South and the West — now home to seven of the 10 most populous cities — and especially in the metropolitan suburbs of those regions.

Strong demographic and economic trends also are contributing to a “new urbanism” that is changing how Americans want to live and work — both in our cities and their surrounding suburbs. A combination of lifestyle and economic factors, as well as heightened environmental consciousness, are all contributing to New Urbanism.

Many real estate investment companies are responding to this trend by targeting investments in transit-oriented multifamily communities, both completed and to be developed, that are located in urban areas and their surrounding suburbs. This approach is part of a strategy for multifamily investments aligned with forecasted demographic and economic trends that could impact the demand for multifamily housing, both in the near term and farther into the future.

By targeting established and stable markets in the top 50 Metropolitan Statistical Areas and metros in the Sunbelt that are experiencing high population growth, REITs and other investors are seeking multifamily communities that attract those who want to live and work near the central business district (CBD) and its extensive options for shopping, dining and entertainment.

What is New Urbanism?

New Urbanism is a design movement that promotes the development of communities — both in urban areas and their surrounding suburbs — where people can live, work and play. Easy access to a range of housing, retail, cultural and employment options is an important goal. Developers borrow from traditional principles of neighborhood design, many of which are reminiscent of the small towns of the past, and add a few new twists for residents that appreciate amenity-rich living for today. Pedestrian-friendly design elements encourage walking and a greater use of bicycles, rollerblades, and scooters. Proximity to public transportation, such as light rail stations, can provide commuters with opportunities to reduce their dependence on personal vehicles, potentially reducing energy costs and conserving energy resources.

Demographic Trends

Multifamily living is a distinct alternative to single-family housing that offers benefits that vary depending on a potential resident’s age and stage in life. People often seek multifamily housing during multiple phases of their lives — first during early adulthood, and again as they subsequently approach retirement. Virtually everyone is a consumer of multifamily housing at some point.

Baby Boomers. Baby Boomers are the 79 million Americans who were born between 1946 and 1964. As their children leave the nest, single-family home ownership sometimes becomes less attractive. As they prepare for retirement, it can make good financial sense for Baby Boomers to downsize from the larger homes they preferred when raising a family. Multifamily housing can allow them to downsize while gaining access to state-of-the-art amenities without the cost of extensive renovations to their older, single-family homes. With lower household maintenance requirements, Baby Boomers can save time and money that can be used to travel or participate in the social and cultural activities offered more abundantly in urban settings.

According to Marilynn Mobley, a senior vice president with Edelman Public Relations specializing in research-based insights about Baby Boomers, Boomers are increasingly seeking places where they can mix an affordable lifestyle with a great social life. They also like amenities. After spending years raising children, commuting, mowing grass and entertaining in their large suburban homes, many Boomers are ready to let someone else worry about the upkeep.

“Too many developers have assumed that Boomers all want ranch condos in ‘active adult’ communities for those 55 and up,” Mobley says. “Some do, but just as many are ready to try the urban lifestyle for a change.”

Generation X and Echo Boomers. The Echo Boomers, those born between 1980 and 1994, are an especially important demographic group because, with a population of 73.7 million in 2007, they are nearly as numerous as the Baby Boomers. Combined with Generation X, those born between 1965 and 1980, these generations of young Americans are expected to provide a historically strong driver for near-term growth in the demand for multifamily housing.

Echo Boomers are more than 30 percent more likely to live within 3 miles of a city center than those of prior generations, according to The Concord Group, a boutique real estate consulting firm based in Newport Beach, California.

“They prefer… character, distinctive architecture, and style,” The Concord Group says. “Think urban density, infill, transit-oriented development and the kind of adaptive reuse of existing properties that typically comes with today’s downtown redevelopment efforts.”

The Concord Group also believes that Echo Boomers prefer smaller 24/7 communities where they can live, work and play with less dependence on personal transportation and a stronger sense of place than most traditional suburban areas offer.

Economic Trends

Sharply higher costs for food and energy are impacting all Americans, regardless of their age. Inflation in consumer prices averaged a comparatively low 2.5 percent per year from 1993 to 2006. But consumer prices rose at a 4 percent annualized rate in 2007. By July 2008, that rate had spiked to 5.6 percent — the highest inflation rate in 17 years. Living closer to where one works and plays is a way Americans can reduce energy costs and provide much-needed relief for household budgets. At the same time, the environment can benefit from reduced pollution and improved land use and sustainability.

From Infill to the Suburbs

Some multifamily developments help bring new vitality to underused areas near the urban core that previously may have been in decline. This approach enables potential residents to make better use of any existing mass transportation infrastructure, which can reduce pollution, conserve energy, and reduce costly dependence on personal transportation. Closer proximity to the city’s amenities provides lifestyle advantages preferred by Baby Boomers and Echo Boomers alike.

Host cities benefit from improved land use when people are brought back to older parts of the city that may have been overlooked and underused. Because development in these areas can increase the city’s tax base, tax incentives are sometimes offered to developers as part of the city’s initiatives to promote urban renewal. The increased city tax base helps provide funding for urban renewal investments such as improvements to the public transportation infrastructure. As urban renewal progresses, demand for housing in these areas could rise, potentially increasing the value of multifamily developments located nearby.

The American Association of Retired Persons, known as the AARP, forecasts that residential demand for transit-oriented developments will grow from 6 million households in 2000 to 16 million households by 2030. They expect growth to be modest through 2010 and then accelerate as transit systems are constructed and expanded.

Selected multifamily developments are providing many of the lifestyle benefits of urban areas to those who prefer to live in the suburbs. Multifamily communities often improve suburban land use and reduce sprawl by increasing demand for suburban businesses and developing near commuter stations for mass transit. 

For the Future

In the next few years, transit-oriented multifamily communities in both urban and suburban locations will become more prominant on the real estate landscape — providing plenty of multifamily living options for residents of all ages.  

Mark Alfieri is chief operating officer of Behringer Harvard Multifamily REIT I, Inc.

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