A housing boom for the ‘creative class’

The US housing industry bounced back a bit in 2012, with 31 percent more building permits issued than 2011. Multifamily units led the way, rising 46 percent. Single-family permits increased 23 percent and are still less than a third of what they were in 2005.

Yet some parts of the industry are very strong, and those include housing in cities with a highly educated workforce — the “creative class,” so-named by Richard Florida. Metro regions with the most young adults with a college degree are listed in the graphic below — Boston, DC, San Francisco, and the Research Triangle of North Carolina (Raleigh and Durham-Chapel Hill) lead the way.

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San Jose (Silicon Valley) and Minneapolis-St. Paul are also major metro areas that attract the creative class — and for sheer numbers of educated workers, no place matches New York City. Charlottesville, Virginia, and Ann Arbor, Michigan, are two small metros that make the list because they are also college towns — which contributes to their high education level.

Top 10 regions with the most highly educated 18-34 year olds
Source: Reconnecting America

This ‘creative class’ group has put up some impressive housing numbers in the last two years, according to an analysis by Better! Cities & Towns (see table below). Building permits in these cities rose by 194 percent from 2010 to 2012 — more than 5 times the national average. Nearly 9 out of 10 of the permits were issued for multifamily housing in the the core cities of these regions — and most of them in very walkable neighborhoods. Development is booming in 8 of the 10 top creative class cities — all of the major metro areas on the list.

The only exceptions, at first glance, were Charlottesville and Ann Arbor. These places don’t attract a lot of development because they are relatively small, but even so there are signs of significant growth in 2013 and beyond. “Charlottesville has a sudden rush of developers turning dirt on projects that stalled for years during the economic downturn,” reports NBC29.com, a local news source, on February 13. “A chart in the city’s planning office lists more than 860 residential units under construction right now, including homes, townhouses and apartments. Another 541 are under review or approved.”

Downtown Ann Arbor has three mixed-use high-rises in planning or construction.

A force in shaping cities

Reconnecting America’s recent report on urban America, Are We There Yet? Creating Complete Communities for the 21st Century, identified the creative class as a major force shaping the built environment. “Much has been made in this country of the changing preferences of the younger generation of workers called the “Millennials” or “Gen Y” — the children of Baby Boomers born between 1980 and 1995 — who show a preference for living and working in dynamic urban settings. Many Millennials qualify as members of the “creative class,” the main players in the knowledge-based economy,” according to the report.

Creative class workers include scientists, engineers, artists, musicians, university professors and other educators, architects, and designers, Reconnecting America writes. They certainly appear to be shaping the housing market.

Populations of educated young adults are increasing twice as fast in close-in neighborhoods, according to a 2011 study by CEOs for Cities. Many Millennials don’t own a car. The presence of the creative class is an important indicator for growth, especially in multifamily housing.

How many metro areas in the US attract a significant number of the creative class? Are We There Yet lists 40 metro areas — see tables below — that are in the top 10 for most educated young adults in each size category. Most of the nation’s largest metro areas — New York, Chicago, San Francisco Bay area, DC, Philadelphia, Atlanta — make the list. Nearly every metro area above 1 million has significant numbers of the creative class regardless of percentages. The job prospects in these cities attract the talented young adults.

Here are some other observations:

• The creative class is all over the US. Whereas most of the development in the US in recent decades has tended to take place in the South and Southwest and has focused on major metro areas, the creative class is distributed in every region and every size category. The smallest cities on the list are college towns, but the presence of high-tech and biomedical industry is a big factor in many of the larger metro areas.

• The creative class has implications for transformation of the suburbs. The Washington, DC, region has 43 “regionally significant” urban centers, mostly outside of the city proper, and the vast majority were developed in the last two decades. Researcher and real estate expert Christopher Leinberger finds that the educational level of the region has been a big factor in its transformation. Many educated young adults are heading for the suburbs, but they are still looking for urban lifestyles. Metro areas with a high numbers of creative class wokers will likely find it easier to make suburbs more walkable — both in terms of political will and development pressure in that direction.

When these young adults start having children — and many of them already are — most won’t just buy a house on a cul-de-sac like their parents. They will be looking for the walkable niches in the region.

Impact on commercial development

• More than housing is affected. Since 2009, nearly half of commercial development of all kinds in the DC region was directed to the major mixed-use centers, Leinberger reports. The walkable housing may be key to attracting high-tech and research-oriented businesses that want to locate near talented employees, some urban planners have told Better! Cities & Towns.

• Just because a region has the most educated young adults doesn’t mean it is always successful in attracting this demographic group. Only 14.2 percent of the population in Boston is between 25 and 34, a couple of percentage points less than New York City, DC, and Austin, TX, according to Emerging Trends in Real Estate. One possible reason: Boston’s high housing prices.

• For some metro areas — e.g. Baltimore — the abilility to attract Millennials has been a bright spot in an otherwise lackluster real estate economy. Number four on the list for metro areas with a 1-3 million residents, Baltimore has a 10-year record of attracting “Echo Boomers,” notes Emerging Trends.

Note: This article is from the March 2013 issue of Better! Cities & Towns.