Economists, Housing, and Lack of Observation

2017 April 25
tags:
by drdog09

I suggest before you read this piece go peruse this article — http://www.zerohedge.com/news/2017-04-24/who-will-live-suburbs-if-millennials-favor-cities

The regulars at BJG know my points on what happens during the pending generational shift —

* The next generation X and Millennials are a smaller contingent than the Boomers. By about 10%.
* That will impact the valuations of housing as it was currently structured during the Boomer years.
* With wages lower for the generation X and Millennials we will see a move back to a multi-generation household.

What Charles Hugh-Smith brings to the table is the following claim —

* That Millennials will favor the cityscape vs suburbia.

Lets look at the claims in his piece.

The first is encapsulated in the above graphic. Its the presumed GDP generation of the major MSAs in the nation. Personally I would substitute the word Transaction Cost rather than GDP in those areas. These sites are value add centers, rarely producing anything of first order value. Water, food, raw materials being those of first order value and all imported. Functions like advertising, media, arts being third order value.

What I find interesting? Midland was the fastest growing of those in the graphic. Midland is by no means backwoods but it is far from DFW or NYC. 10min drive can put you Texas scrub desert.

Moving to his second observation, Millennials will favor the urban rather than suburban landscape. Funny thing is, we Boomers had the same draw as a group. I lived in the Philadelphia MSA for over a decade. It was fun and profitable. My own daughter, a Millennial has had the same draw when she was younger but now approaching the latter part of her 20’s is already thinking of something other than city life. Pretty much once the next generation is produced the luster of city living fades.

One consequence of stagnating wages and rising home valuations is a “nation of homeowners” morphs into a “nation of renters.”

We are already seeing that trend dismembered on two fronts. As the generational shift of lower wages occurs the valuation of housing will drop to meet the wage scale. It always has. Where there will be a price collapse is in the McMansion class of housing. Some of which we are seeing on the fringes.

But there are two underlying trends that Smith is missing. The first is the multigenerational household. If one looks at the 400 year history of this country housing, urban and rural has traditionally been multigenerational. The fifty year stint post WWII is abnormal by historical standards and was only sustainable due to the dynamics of world reconstruction after the war. How do I know this is occurring? I live it now. But it does not have to be anecdotal. Its in the news all the time but goes by a different name — “living at home”. (note)

I foresee this trend continuing. I suspect a good percentage of the Boomer population will be setting Trusts on the suburban homes so as to be able to transfer the assets to the children with little impact to their children. Essentially many Millennials lacking the need to raise capital can afford the suburban living arrangement.

The second trend that bodes ill of the ‘renter’ existence is the Tiny Home movement (note) Essentially they are free standing studio apartments for lack of a better description. One could apply a different name to these structures — starter homes. Their costs are so low that even a burger flipper can afford them even without having to have a $15/hr wage scale. But here is an important point, they have the cache’ of being a home which in a sense perpetuates the suburban mentality. Once they out grow that home its on to a 2 or 3 bedroom model. And so it goes.

The final piece of the puzzle not mentioned by Mr. Smith or myself is that bane to suburban existence, the commute. In areas like south CA, it is not uncommon for many to have a 2hr commute. The average being 45min nationally. But what if that was wiped out would that not change the suburban existence? I contend it will and the system that will terminate the commute as we know it already exists — Uber/Lyft.

Both companies today run the equivalent of a taxicab model at the present time. Lyft is already gearing up to support transit share. An arrangement where a Lyft driver takes multiple individuals, and himself, to a common accommodating end transit point. Then the reverse. Now throw in the automation of self driving vehicles in the mix. Fine. Then think a tad larger, like say the equivalent of SuperShuttle van. Only it works a defined route of like destined individuals with pickup and dropoff at your front door.

Impact? Well look at your own expenses with having two or more vehicles. Now imagine those expenses if you only owned one and a quarter or eighth vehicles. One for use in the off/odd times you need a vehicle. The eighth share for your commute. The eighth share van might even earn its keep by being rented out in those times between the commute for other purposes. In that kind of environment the worst part of suburban living might actually become productive and community building. A feature, not a bug.

To complete this picture imagine an Amazon-Walmart-Uber combine or coop. Amazon sells you the carshare (think timeshare) on their site. (note) You commute with 4 or so people weekly. That service is operated by Uber who also maintains and arranges cost offsetting secondary uses for the van usually for package delivery for Amazon. (note) You ordered your groceries online via the WalMart website as have your seat mates. The goods are loaded in the back right next to the packages that Amazon left in the van on its last route for the day. You each arrive at your home and unload. The van is whisked away to other purposes then cleaned out on third shift ready for next days use.

So lets recap:

* Prices of suburban housing will drop relative to urban housing or at least remain static. (Remember ‘The rents too high!’ and that’s in NYC.)
* Transfer strategies by wise individuals of existing housing units will engender continuance of the the multi-generational housing model to the next generation.
* The Tiny House movement clearly indicates a preference for independent living, just not the large overhead. A prejudice for ownership over rental.
* Automation and sharing will eliminate the worst aspect of suburban living and their costs.
* Online ordering will continue and reduce the drudgery associated with suburban living even further.

All that glitters is not gold which defines city living neatly.

22 Responses leave one →
  1. 2017 April 25 4:33 am
    [1]
    drdog09 permalink

    If there is anything that the above article illuminates it is that Americans will become more location bound not less. If wages stay stagnant the ability to even afford rents will be an issue.

  2. 2017 April 25 6:23 am
    [2]
    justrand permalink

    excellent analysis…by you, drdog

    but does all this assume that the world as we know it persists?? I don’t believe it can or will, and then pure survival take precedence over everything

  3. 2017 April 25 6:24 am
    [3]
    drdog09 permalink

    As if to reinforce the posting — http://www.zerohedge.com/news/2017-04-25/us-home-prices-rise-fastest-pace-july-2014 — Problem is only now is the leading edge of the Boomers heading for the nursing homes. Give it 10 more years and price pressure will decline.

  4. 2017 April 25 6:26 am
    [4]
    drdog09 permalink

    2,

    Oh you are right on there. The above assumes a muddle thru situation with only economic forces in play. A CWII, EMP attack, etc trumps that and brings a whole different set of problems front and center.

  5. 2017 April 25 7:05 am
    [5]
    bc3b permalink

    Other things to considered:

    1. According to the Census, 30.3% of millennials live with their parents.
    2.The desire to live in big cities subsides once couples have children – factors like safety, schools, etc. come into play. With the exception of a few schools, most major urban schools districts are a vast wasteland and there aren’t many Catholic or private schools in most cities.
    3. A lot of the appeal of city life becomes less important as people reach middle age.

    I have a niece whose husband has a very good income. They have lived in a brownstone near Wrigley Field for about 25 years and raised a family. I think the north side of Chicago is somewhat unique in that there are a lot of white upper income families living there and there is a better choice of schools than in most cities.

    If you live in most suburban areas, you really don’t visit the center city much. My trips into Detroit are primarily for Tigers games.

  6. 2017 April 25 7:10 am
    [6]
    justrand permalink

    O/T…file this under: “WTF?”

    Trump is caving on even STARTING the fu@king wall?

    He had whittled his request for initial funding down to $1 billion. The U.S. Government spends that much EVERY HOUR, 24×7. The government spends that much on research into why crickets crick!

    Hell, if went through all the couches in all the various government agencies, they could cobble that much together from LOOSE CHANGE!

    Supposedly, this “deal” will keep government running and STOP funding for Planned Parenthood. What do ya wanna bet PP gets every bit, and more, that they want?!?

  7. 2017 April 25 7:19 am
    [7]
    justrand permalink

    A bit more on the delay of building the wall:

    http://www.thegatewaypundit.com/2017/04/border-patrol-union-president-rips-paul-ryan-delaying-funding-border-wall-video/#disqus_thread

    Bottom line: NOTHING will happen

    I’m losing more faith in Trump every day…and it pains me to type that

  8. 2017 April 25 7:22 am
    [8]

    Trump~~A manchurian trojan horse ???~~~drop trou, bend over grab ankles, here come da trumpster.

  9. 2017 April 25 7:25 am
    [9]

    7 – Join the club, not any other choice would have been any better. Appears he more interested in being liked than feared – which will get you rolled EVERY TIME.

  10. 2017 April 25 7:42 am
    [10]

    Irish Diplomacy

    One thing about lads from Ireland is that their hearts and humor are always in the right place! Jimmy Murphy, a City Council member from Dublin, was asked on a local live radio talk show, just what he thought about the allegations of torture of suspected terrorists.
    His reply prompted his ejection from the studio, but to thunderous applause from the audience.

    HIS STATEMENT:
    “If hooking up one fookin’ rag-head terrorist’s testicles to a car battery gets the truth out of the lying little camel shagger to save just one Irish soldier’s life, then I have only three things to say; Red is positive, Black is negative and make sure his nuts are wet

  11. 2017 April 25 7:53 am
    [11]

    Haley Byrd‏Verified account @byrdinator 12m12 minutes ago

    Breitbart News is denied permanent Capitol Hill press credentials & their temporary passes won’t be extended in May


    But fake news outlets…no problem.

  12. 2017 April 25 9:33 am
    [12]

    Trump is preparing the battlefield to dump bannon.

  13. 2017 April 25 9:44 am
    [13]
    drdog09 permalink

    6,

    I am surprised that a Democrat has not picked up on the wall issue…..

    “Hey wait a minute! Why is Trump dumping the wall if the Mexicans were supposed to pay for it??”

    That is the line I would use as a wedge issue. That they are too stupid to frame it in those terms shows just how deep they are into the whole race paradigm.

  14. 2017 April 25 10:03 am
    [14]
    drdog09 permalink

    9,

    Truman said it best — “If you a looking for a friend in Washington DC; get a dog.”

  15. 2017 April 25 10:41 am
    [15]
    bc3b permalink

  16. 2017 April 25 1:13 pm
    [16]
    drdog09 permalink

    A guy who was a prepper before there were preppers — http://uplandgardener.blogspot.com/2017/04/ralph-borsodis-advice-for-surviving_21.html — 1930’s.

  17. 2017 April 25 1:14 pm
    [17]
    drdog09 permalink

    “Typical Chicago Monday: 3 dead/13 wounded”

    That’s a normal day for CHItown. Imagine it when SHTF comes.

  18. 2017 April 25 4:56 pm
    [18]
    justrand permalink

    The GOP has absolutely no balls. So we’ll have no walls.

    The Democrats are still in charge.

  19. 2017 April 25 4:57 pm
    [19]
    drdog09 permalink

    Interesting view of the French election so far — http://www.thediplomad.com/2017/04/le-seisme.html

  20. 2017 April 25 5:02 pm
    [20]
    gnqanq permalink

    JR – it is the Uni-Party.

    This action and others like it are going to bring the Social Unrest that Martin Armstrong talks about. Gerald Celente makes similar remarks about people losing it when they have lost everything.

    Today, over on Martin Armstrong’s site, he had a video telling the interviewer that people are willing to put up with a lot during Good Times. But during bad times, people are not so tolerant. Thus why he sees Social Unrest coming.

  21. 2017 April 25 5:53 pm
    [22]
    drdog09 permalink

    GN, 20,

    “[y]ou only have power over people as long as you don’t take everything away from them. But when you’ve robbed a man of everything, he’s no longer in your power–he’s free again.”
    — Aleksandr Solzhenitsyn

    Should the globalists cross that line its Katie bar the door.

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