Gotham vs. Pleasantville

Why Is Urban Housing So Expensive? Because People Want To Live There.

Starting in around 2002 prices everywhere began to rise, but over time the urbanized areas experienced more rapid increases. Today, the housing market is hot in walkable urban areas, and a softer in the suburbs.  Evidence of continued strong demand for urban living.

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As pointed out by the Economist this week in a cleaver parable about Gotham vs Pleasantville, rising house prices rising faster in in urban areas vs the suburbs are a clear indicator of accelerating demand for these urban homes.   Many urban areas have limited or no room to increase supply, so if demand rises so do prices as those with the most money are able to secure the most walkable, transit oriented homes.

Imagine two areas: Gotham and Pleasantville. Say the demand to live in Pleasantville increases a little while the demand to live in Gotham soars. And say that due to differences in land use restrictions, housing supply responds dramatically in Pleasantville and very little in Gotham. Then what we’ll observe in Pleasantville is a rapid increase in population and slower growth in prices, and what we’ll observe in Gotham is rapid growth in prices and slower growth in population.

And this is exactly what we have observed in the real world. Suburbs have seen massive housing growth and rapid population growth, but prices in central cities have soared, even in many places where population numbers are level or falling.

If no one wanted to live in central cities, prices for homes there would not rise. And indeed, several decades ago, prices for homes in big central cities were dropping. But that trend has clearly reversed. You can’t draw conclusions about demand shifts from population numbers alone. This is a very simple point, and yet it’s repeatedly ignored.

90% of Home Sales are Urban Housing

According to an article in USA Today, 90% of home sales nationwide are to young professionals looking for urban housing. The article completes the recent trend that has pushed the “McMansions” of yesterday completely out of vogue, in favor of downsizing and proximity to city cores.

Nothing at all surprising, but between the economic downturn and a desire to live with less of an environmental footprint, smaller more functional homes in downtown and mixed-use areas are fast replacing the suburbs – at rates surprising even to those of us in the urban real estate business.

To watch a news report about this from WKYC-TV in Cleveland, click here.

America’s Costliest Cities

Check out a photo slideshow of the costliest cities

Forbes has just released its report on the cities in the country that cost the most to live in – it should come as no surprise that New York (Manhattan) tops the list, with San Francisco just behind. What cities round out the top 10?

The cost of groceries, gasoline and various sundries, at a little more than twice the national average, is highest in New York City – which also has the highest housing costs in the U.S. The cost of housing also pushed San Francisco, San Jose, Los Angeles and Washington, D.C., to top spots on our list. In all four cities, the average home price during that time was well over $600,000. While further down the list, the average price fell to $226,998 in Austin and $201,020 in Nashville.

However, housing prices are only part of the story. To compile this list, Forbes looked at cost of living expenses in six categories: grocery items, housing, utilities, transportation, health care, and miscellaneous goods and services. California led with six cities on the list, four that make our top 10. Texas follows closely behind with four cities: in addition to Austin, San Antonio, Houston and Dallas appeared. Click here to see the complete list of costliest cities.

Read the full story on Forbes here.