Something doesn't quite square up between U.S. housing data and what we know about the changing demographics of U.S. metro areas. As Census Bureau data show, growth in cities is tilting ever so slightly back toward the suburbs. Yet multifamily housing, mostly situated in urban centers, is still driving the American housing market. Are developers out of step with demand?
Between 2010 and 2013, several U.S. cities saw more growth than they did over the entire course of the decade between 2000 and 2010. As the Brookings Institution's William H. Frey has reported, cities with populations greater than 250,000 are showing growth rates of slightly more than 1 percent, much higher than the average growth rate for the previous decade.
Yet the Census data also show that this growth rate is falling—albeit marginally. San Marcos, Cedar Park, and Georgetown, all three of them Austin suburbs of about 50,000, are the fastest growing cities in the country. While urban growth still outpaces suburban growth, Frey acknowledges that "the new numbers for 2012–13... suggest a closing of the city-suburb growth gap with the small downtick in city growth and an even tinier suburban growth uptick."
Even though suburban growth is catching up, the multifamily housing boom that has characterized explosive growth in center cities for the last several years is still driving the economy. With winter finally behind us, permits for new housing grew 8 percent in April; construction on new housing jumped a full 13 percent. Most of these new homes come in the form of apartment units. In April, there were 2,000 new permits for single-family homes versus 81,000 new permits for multifamily units. Housings starts showed the same wide divide: 5,000 new single-family homes versus 124,000 new multifamily units.
But few of those multifamily units are being built in McKinney, Texas—a Dallas exurb that is one of the fastest-growing places in the nation. What explains the mismatch between the kinds of new homes we're building and the places where we're moving?
In McKinney and other fast-growing suburbs and exurbs, rentals are the major force driving growth—just not multifamily rentals. Abundant stock left over from the single-family housing boom whose bust fueled the Great Recession are being opened to a new generation of suburban renters by major private-equity firms such as the Blackstone Group.
This transformation of the suburbs is a new and not-altogether-welcome development. The single-family homes being bought up, rehabilitated, and then rented out again by investment units such as the Blackstone Group's Invitation Homes—in the suburbs and exurbs outside Seattle, Los Angeles, Chicago, Dallas, and other cities—are leftovers from a housing boom characterized by cheap construction and easy credit. The conversion of unsold or foreclosed single-family homes creates fewer jobs than new construction. From an urbanist perspective, single-family home rentals come with all the drawbacks of large-plot suburban development and none of the benefits.
Some are bullish that the surge in multifamily construction in America's growing urban centers was always inevitably going to return apartment dwellers to the suburbs, once they outgrew their apartments. At Forbes, Bill Conerly sums up his prediction this way: "When the current crop of young adults get married and has kids, and the kids grow beyond toddling to full-blown running, I suspect that the young parents will start looking for a house."
It's rather the case that the appetite for rental housing, which traditionally takes the form of multifamily housing, is transforming the suburbs and its traditionally single-family homes. With affordable housing harder and harder to find in places such as Austin, New York, and Washington, D.C., renters are finding themselves in the suburbs in the single-family homes built for the last boom. Developers are retrofitting the financial reality of the suburbs—from ownership to rental societies—without changing the suburban home whatsoever.