How Urban Growth Alters Multifamily Development

Ed McMahon, Urban Land Institute

U.S. cities are growing faster than the suburbs for the first time in decades—this is among the key findings of a recent Urban Land Institute and RCLCO report, The New Geography of Urban Neighborhoods. The increase in population has been causing a ripple effect in the multifamily sector, with investors and developers alike trying to accommodate a sprouting demand that will add even more pressure on supply-restrained markets.

The report shows that from 2010 to 2015, denser urban locations recorded a higher rate of growth than residential neighborhoods, highlighting residents’ preference for mixed-use districts. The trend made live-work-play communities appealing and fashionable. Currently, there are more than 29 million Americans living in urban areas—17 percent of the total population—in just 1 percent of the land in the 50 largest metropolitan statistical areas, according to the same research.

In recent years, people started migrating from the suburbs toward the urban core. A factor generating this phenomenon is employment. From 2005 to 2015, urban areas encapsulated 30 percent of the nation’s existing jobs, as well as 36 percent of new job growth. Despite the suburbs recording nearly the same increase, downtowns are thriving unlike any other type of neighborhood. 

Convert-to-suit

While mixed-use communities are becoming a more desirable living option, three-quarters of urban residents still live in predominantly residential areas. The report indicates that people in gateway metropolitan areas such as New York are more likely to live in denser neighborhoods with a broader range of facilities. However, people in secondary markets such as Baltimore, Cincinnati or Pittsburgh are more likely to live in lower-value neighborhoods with fewer residents.

“Most cities are now embracing higher-density development. Before the recession, the vast majority of residential development was in large-lot, single-family suburban-style neighborhoods. This, plus changing demographics, created a supply-demand imbalance. Most markets had an oversupply of large-lot housing and an undersupply of everything else—small-lot housing, multifamily housing, infill housing or senior housing,” ULI Senior Resident Fellow Ed McMahon told Multi-Housing News.

Between 2010 and 2017, the rental space inventory increased by 32 percent, while the suburbs recorded a 16 percent expansion. Today, suburban and urban markets are favoring higher-density, mixed-use development as well as conversions of older buildings. 

“Most American cities lost population for decades before bottoming out. This means there are thousands of vacant and abandoned properties in almost every city. Even in fast-growth cities, there is lots of room for redevelopment because much of the development that occurred prior to the recession was low-density, single-use and auto-oriented,” McMahon added. 

Image courtesy of the Urban Land Institute