Thursday, March 11, 2010

Zoning in the New Normal

As real estate begins to emerge from its great sleep of the past two years, one can only hope that trends will changes and be more responsive to the actual changing demographics of this country. For too long we built for a mythical population of people who didn't exist or never came. Now is the time to be much more mindful of who we are actually building for. And guess what, it's not the white suburban family of 4 with a dog. That group is shrinking faster than my 401k did in 2008.

According to a report in the Charlotte Observer on March 10, 2010, "minorities make up nearly half the children born in the U.S., part of a historic trend in which minorities are expected to become the U.S. majority over the next 40 years. Demographers say this year could be the "tipping point" when the number of babies born to minorities outnumbers that of babies born to whites.The numbers are growing because immigration to the U.S. has boosted the number of Hispanic women in their prime childbearing years. Minorities made up 48 percent of U.S. children born in 2008, compared to 37 percent in 1990."

Now combine this with some of the other key demographic trends affecting real estate in the next decade in the January/February issue of Urban Land magazine. In his article, developer and real estate investor Anthony Trella noted the following:
The population of the United States is projected to grow by about 3 million people per year for at least the next 30 years—representing about 18 million more people in the United States by the end of 2015. This added population will not be evenly distributed across all markets, and where these people settle will vary across city and county submarkets.

About one-third of the annual population growth—1 million people—will be traceable to immigration from outside the United States. This group will arrive with different cultural and social attitudes that will affect the planning, design, and buildout of real estate structures. Many of these differences will run counter to historical trends and the growing expectations of generation Y.

The number of households without children will continue to rise and will affect rental housing as homeownership rates continue to decline.

All real estate, whether already built or future development, will be affected by job growth and the need for new job skills. Where these new jobs are located and the type of jobs they are, as well as the continuing  contraction of other job types, will have the single, most dynamic, ongoing effect on real estate. In addition, the length of the commute to reach these jobs and the relative wages they pay will shape development and guide investment.

Of course, I think that the last note is perhaps the most important. Job growth drives the demand for real estate. Without jobs, businesses don't need office or warehouse space, employees don't move to new cities and buy houses, and retail doesn't open shop. I think that the last decade lulled too many into a false sense of the market. Not every market could have been white hot because not every market was actually increasing the number of jobs. And while many will say that the real estate industry is a major of jobs in this country, I would contend that they are a dependent industry, not a catalyst. People that make things and sell ideas are the catalysts of our economy.

Ignorance of the building blocks of a vibrant economy is just plain ignorant. So too is ignorance of the changing "face" of our population. How many communities have more than 80% of their land zoned for large-lot, single family homes to the exclusion of any other choices. And how many permit small scale, low cost incubator businesses. Can the next HP or Microsoft really be started out of a suburban garage or has it been zoned out?

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