Demand for suburbs vs demand for central cities

Americans overwhelmingly prefer suburbs.   We know this because most Americans  choose to settle in suburbs.

No, wait.  Demand for suburbs and exurbs is collapsing; they are on their way to becoming the next slums.

Both memes are wrong, I think.  The “suburbs are dying” meme is wrong because most metropolitan growth will continue to occur in the suburbs — at least in rapidly growing metropolitan areas — regardless of shifts in preferences.  The first is wrong because rapid suburban growth doesn’t tell us anything about the relative demand for suburbs and central cities.  

First, rapid growth in a metropolitan area is synonymous with rapid growth in the suburbs.  And it will always be that way.  (The form of suburban development is a separate issue.)  It is harder to add new housing in a built-out environment.  Denser construction is more expensive and takes a lot longer to get built.  

Take Austin.  Austin’s urban core had about 170,000 residents in 2000.  Austin’s metropolitan area added about 390,000 residents between 2000 and 2008.  Even if Austin’s urban core had doubled in population between 2000 and 2008, most growth had to and did occur at the metropolitan area’s fringes.  Of course, Austin’s urban core did not double in population.  It is not possible to double the density of a built-out urban core in just eight years.  I’d be surprised if Austin’s urban core grew by 20% between 2000 and 2008.  So its suburbs necessarily have boomed, even though Austin’s core is healthy and experiencing steady growth.

Ditto with cities like Dallas, Houston and Atlanta, which each added one million residents between 2000 and 2008.  It would have been impossible for their central cities to add more than a small fraction of the newcomers.

But because most growth must occur in the suburbs, this growth does not alone tell us whether demand for the suburbs is growing faster than demand for the central city.  

We know that demand is higher for the suburbs when the central city is losing population while the suburbs are adding population.  But in thriving cities, both suburbs and central cities are adding population.  The central city is simply adding population at a slower rate.

To figure out relative demand, we also have to consider prices.  Because the housing supply in the central city is relatively inelastic, higher demand mainly shows up as higher prices.  Because the housing supply in the suburbs is relatively elastic, higher demand mainly shows up as more subdivisions.  To determine whether demand is rising more rapidly for one than the other, we have to weigh both the rate of new construction and the change in prices.  And, to complicate things, we have to factor in shocks like rising gas prices and recessions; these have different impacts on the relative demand.  

So determining whether demand for one is growing faster than demand for another means disentangling a complicated knot.  That is a hard thing to do.  A lot harder than focusing on just rising supply or rising prices.