urban growth and housing affordability: the conflict
DESCRIPTION
Susan M. Wachter's presentation for the Penn IUR conference"Shape of the New American City"TRANSCRIPT
Urban Growth and Housing Affordability: The Conflict
Susan M. WachterRichard B. Worley Professor of Financial Management
The Wharton SchoolCo-Director, Penn Institute for Urban Research
University of Pennsylvania
Shape of the New American City
Penn Institute for Urban Research
October 24-25, 2008
Introduction: Context• Metropolitan spatial structure in the next
half century: population growth and potential large scale policy shifts
• Advantage of cities: clusters that give rise
to economies of scope and scale drive city growth
• Challenge: Tension– THE REINVENTED/NEW AMERICAN CITY – WHO WILL BE ABLE TO AFFORD TO LIVE
IN THE GROWING CITY?
Urban Growth and Housing: Historical Trends• Urban growth trends with focus on
turnaround cities – illustrative of the potential for city
growth – illustrative of the challenge for
affordability
• Urban growth and social inclusion: the tension
• Looking forward: Current crisis impact and future prospects
http://www.census.gov/geo/www/mapGallery/images/2k_night.jpg
Urban Growth and Decline, 1980 & 2000
Growing Declining
ColumbusDallas
HoustonJacksonvilleLos Angeles
MemphisNashvillePhoenix
San AntonioSan Diego
AtlantaBaltimore
BostonBuffaloChicago
CincinnatiCleveland
DenverDetroit
IndianapolisKansas CityMilwaukee
New OrleansNew York
PhiladelphiaPittsburgh
San FranciscoSeattle
St. LouisWash D.C.
Growing Declining
AtlantaBostonChicago
ColumbusDallasDenver
HoustonIndianapolisJacksonvilleKansas CityLos Angeles
MemphisNashvilleNew YorkPhoenix
San AntonioSan Diego
San FranciscoSeattle
Wash D.C.
BaltimoreBuffalo
CincinnatiCleveland
DetroitMilwaukee
New OrleansPhiladelphiaPittsburghSt. Louis
View From 1980 View From 2000s
Turnaround Cities: Why and How?• Reinventing their economic base• Public governance: crime• Push effects: environmental
containment
National Data• Growth of rents and house prices moderate:
1970-2000: Rent growth .7% and home prices 1.2%
annually• Urban rents most recently have grown faster Rent growth .5% in cities and .4% in
suburbs• Urban population increased by 7 million from
1990-2000Population (M) Rent Home Value Cap Rate
1970 72 $ 540 $ 83,000 0.0781980 73 $ 560 $ 105,000 0.0641990 78 $ 660 $ 105,000 0.0752000 85 $ 680 $ 119,000 0.069
All US Cities 1970 - 2000
Note: All dollar values are in 2005 dollars.
Turnaround cities: affordable no more• While prices and rents were relatively
clustered in 1970, by 2000, prices reflected wide disparities in growth outcomes
• Home prices relatively flat in no growth cities
• With growth and anticipation of growth, prices rise
• Prices rise far more than rents• In high priced regions, city prices may
exceed prices in suburbs
1970 rent $400-680, price $53-142k
2006 rent $520-1140, price $93-783k
Capitalization Rates: rents/prices• Cap rates averaged across cities ranged
from .06 to .08, but across cities range from .02 to .10
• Cap rates in 1970 ranged from .05 to .13, in 2000 from .04 to .11
• Low cap rates indicate investors and homeowners expect home prices to appreciate
• High cap rates indicate investors and homeowners expect slowing growth or declines in home prices
• Affordability similarly diverges
1970 1980 1990 2000 2006670,000
694,000
718,000
742,000
766,000
790,000San Francisco Population
Year
Popu
latio
n
1970 1980 1990 2000 20060.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07San Francisco Cap Rate
Year
Cap
Rate
1970 1980 1990 2000 2006550,000
570,000
590,000
610,000
630,000
650,000Boston Population
Year
Popu
latio
n
1970 1980 1990 2000 20060.000.010.020.030.040.050.060.070.080.09
Boston Cap Rate
Year
Cap
Rate
1970 1980 1990 2000 20067,000,000
7,280,000
7,560,000
7,840,000
8,120,000
8,400,000New York Population
Year
Popu
latio
n
1970 1980 1990 2000 20060.00
0.01
0.02
0.03
0.04
0.05
0.06New York Cap Rate
Year
Cap
Rate
Boston
New York
Rent Home Price
Percent Income
$ 1,140
$ 783,000 58.2
Rent Home Price
Percent Income
$ 1,050
$ 420,000 32.9
Rent Home Price
Percent Income
$ 920 $ 482,0000 56.5
San Francisco
San Antonio
1970 1980 1990 2000 2006600,000
740,000
880,000
1,020,000
1,160,000
1,300,000San Antonio Population
Year
Popu
latio
n
1970 1980 1990 2000 20060.000.010.020.030.040.050.060.070.080.090.10
San Antonio Cap Rate
Year
Cap
Rate
Rent Home Price
Percent Income
$ 660 $ 93,000 17.6
1970 1980 1990 2000 2006 2006 2006390,000
412,000
434,000
456,000
478,000
500,000Atlanta Population
Year
Popu
latio
n
1970 1980 1990 2000 2006 2006 20060.000.010.020.030.040.050.060.070.08
Atlanta Cap Rate
Year
Cap
Rate
Rent Home Price
Percent Income
$ 640 $ 154,000 15.9
Atlanta
1970 1980 1990 2000 20061,400,000
1,520,000
1,640,000
1,760,000
1,880,000
2,000,000
Philadelphia Population
Year
Popu
latio
n
1970 1980 1990 2000 20060.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14Philadelphia Cap Rate
Year
Cap
Rate
Rent Home Price
Percent Income
$ 720 $ 112,000 21.4
Philadelphia
1980 Bottoming Turnaround Cities• Boston, Indianapolis, New York, San
Francisco, Seattle
Note: Indexed population calculated by averaging each city’s population relative to it’s 1970 population for each time period.
1970 1980 1990 2000 200675
80
85
90
95
100
105
1980 Turnaround Indexed Population
Year
Inde
xed
Popu
latio
n (%
)
1970 1980 1990 2000 20060.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
1980 Bottoming Turnaround Cap Rate
Year
Cap
Rate
Housing price/urban growth nexus• Consequences of urban growth (and
lack) for housing prices• Reverse causation: Consequences of
high housing prices for slowing growth
• The great separation: constrained v. un-constrained urban areas– e.g. Texas, based on amount of
developable land available– Where population growth does not drive
prices up
States with Growth Management/Land Use Laws
http://www.wsdot.wa.gov/environment/compliance/gma_resource.htm
Projected peak-to-trough house-price decline, %
-20<-10%
No correction
<-20%
-10%<0%
Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO
Housing Price Effects on Growth• Housing prices and
affordability increasingly a factor in where people live
• High price cities losing population due to non-affordability
• Affordability important for growth and for social inclusivity
City Population Growth 2000 to 2006
Boston -2.37%
Chicago -5.07%
Kansas City -1.99%
San Francisco -4.21%
Seattle -0.23%
Incomes in Select CitiesCity Per Capita Income Relative to Suburban Per Capita Income
City City Income as a Percentage of Suburban Income (1960)
City Income as Percent of Suburban Income
(2000)
Difference
Detroit 92% 55% -37%Milwaukee 85% 37% -48%Buffalo 89% 69% -48%Cleveland 69% 59% -10%Cincinnati 101% 84% -8%St. Louis 76% 68% -8%Philadelphia 83% 62% -21%Pittsburgh 102% 88% -14%
Chicago 82% 75% -7%Atlanta 114% 103% -11%San Francisco 95% 116% 21%Seattle 118% 124% 6%
• Prices falling more in outlying areas, not result of oil prices rather of credit withdrawal crisis
• After the crisis, prices will return to trajectory, in growing constrained cities
January, 2008 September, 2008March, 2007
Future Outlook
Long View• 100 million more Americans in 30
years: Where will they live?• Recovering, growing, flourishing
cities with potentially stagnant wages
• Housing affordability challenges in America