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Great American Exodus: What the move to the suburbs means for the real estate market

01 December, 2020

R. Byron Carlock, Jr.
Partner, PwC US

Millennials are leading a Great American Exodus from many major cities. They’re getting married, having kids and finding their downtown apartments increasingly cramped, particularly since the pandemic has stranded everyone at home. These families seek not only more space, but affordable homes and lower costs. In August, total sales inventory across New York City reached its highest data level since 2010.1

PwC’s Emerging Trends in Real Estate (ETRE) 2021 report finds that those in the family starting or expanding mode, ages 30-49, will likely grow by 8.4 million in this decade. That segment is expected to turbocharge the nearly 80 percent share of household growth expected to be captured by the suburbs in the years to come. These young people are ditching big cities and moving to boom markets like Austin, Phoenix, Salt Lake City and Tampa. In those cities, they’re finding more affordable housing and less exposure to industries affected by the pandemic. The Burns Housing Survey reported a 94 percent year-over-year increase in net sales in Florida in August, typically a slow month for sales.

In some major markets, home demand is so intense that there’s less than a three-month inventory.2 Low interest rates are helping to fuel the trend. We believe developers and sellers should be thinking about the following:

The changing use of a home

  • Get with the work-from-home program. Homebuilders should be considering adding new amenities that stay-at-home workers demand. Leading the list: Larger home offices, home classrooms, in-law/guest suites, in-fill cottages, and useful green space, (not, however, golf courses).

  • Many buyers are environmentally conscious and want homes to reflect that. That means more options to use alternative energy, smart home features, eco-sensitive landscaping and high-speed connectivity. Another selling point: Builders who produce less waste in the construction process. 

  • Developers should be prepared to convince lenders that opportunities are viable — and they may have to add equity to entice lenders. This is no time for lenders to cut back on builder lending. 

  • People want space outside the urban core, and that makes homes more important. COVID has prompted many young urbanites to reconsider the best possible location and remain connected to the urban amenities they crave.

People are looking for a new way to live

  • The pandemic has created demand for look-don’t-touch features, the ETRE report says. Builders will have to respond to increasing demand for smart-home technology, touchless controls, motion sensor lights and voice commands. Builders should also expect that young and growing families will likely upgrade their homes to take advantage of outdoor spaces. 

  • Aging parents moving in with adult children or young adults returning to the nest will boost demand for homes with separate living areas and kitchens and private entrances. 

  • Small towns need to redevelop their downtowns to attract new parents to the suburbs. Trendy, urban-inflected downtowns with thriving stores can help anchor the next generation to the suburbs.

Safety, safety, safety replaces location, location, location

  • After widely publicized demonstrations in Seattle, some residents are moving to suburban Bellevue. Social unrest  in Chicago prompted some to mull the previously unthinkable: Moving from their downtown apartments to safer suburban areas. 

  • There are fewer reasons for workers to remain in dense and expensive urban areas. Workers greenlighted to work from home indefinitely or permanently are freed to live wherever they please. Californians in particular are fleeing the high-tax state for the affordable West, including Phoenix, Salt Lake City, Las Vegas and Boise, as well as southern states without an income tax, like Texas and Florida.

The pandemic will end, but the trends it has accelerated probably won’t. Those looking to start or expand families will likely look for more space and better value. Because so many of us are no longer tethered to an office, we’re free to roam the country in search of their ideal community and home. Builders who understand these aspirations — and fears — will be more likely to thrive in the post-COVID-19 era.

Endnotes

1.Stephanie Yang, “Young Families Are Driving the Exodus From New York City to the Suburbs,” Wall Street Journal, October 15, 2020, accessed via Factiva, November 19, 2020.
2.Anna Bahney, “Home sales are off the charts,” CNN, November 19, 2020, accessed via Factiva, November 19, 2020.