The widely hyped suburban obituary is premature, to say the least.
One of the most promising new projects by Washington, D.C.’s largest developer, the urban-focused JBG Cos., is found in Reston, Va., 20 miles from the nation’s capital. Shea Homes’ Northern California division, which focuses squarely on “core areas,” is building two single-family communities, each an hour’s drive from San Francisco. Illinois-based StreetScape Development, which built a business on converting old schools and other downtown buildings into condominiums, has found a new niche in single-family building in Chicago’s trendiest suburbs.
Many of the same builders that spent decades turning cow pastures into cul-de-sacs packed up their suburban specialization—or at least downsized it—and moved to the city in pursuit of single millennials and empty-nest baby boomers who crave the urban lifestyle. Home builders of all sizes are buying up abandoned industrial sites, foreclosed strip malls, and infill communities that others stopped short of finishing when their money ran out during the recession.
Some builders have added multifamily and townhouse development to their menus, while others have shrunk the sizes of single-family homes to fit on city lots with tight boundaries.
Yet, what nearly all of them have learned in the process is that “city” doesn’t mean what it used to. Neither does “suburb.” In fact, nearly every builder that added a post-recession “urban” division has found that home buyers in search of an urban lifestyle aren’t married to living downtown. For many, it seems it’s not “the city” they want at all—it’s the lifestyle.
And a builder can deliver that 20 miles from downtown. Or 60. Or more.
“I don’t think it’s necessarily the distance from the city,” notes Rod Lawrence, a partner with JBG. His company recently bought land around an existing office park near a future Metrorail stop in suburban Reston, where it gradually will add restaurants, stores, and multifamily homes. “It’s more the density in the place and how the place is designed.”
He calls it “placemaking”—creating an urban experience in a suburb by building condos and apartments on the same block, or even in the same building, with restaurants, boutiques, offices, banks, dry cleaners, and food markets. The homes are within walking distance—or at least within a few minutes’ drive—to public transportation that can speed commuters to their downtown jobs if they don’t work in the neighborhood.
Lawrence doesn’t describe any of JBG’s projects as “suburban.” Instead he calls them “walkable urban,” no matter how far away from downtown D.C. they are.
“It’s about creating a great place where people have choices for walking to restaurants, walking to get a cup of coffee, walking to work,” he says. “People are looking for that, whether it’s in the city or in the suburbs.”
A Dash of Manhattan
“Walkable urbanism”—a term coined by Christopher Leinberger, a Brookings Institution senior fellow and George Washington University professor—isn’t new, but it’s red hot.
A 2014 report from the university counted 558 walkable urban places, or WalkUPs, in the country’s 30 largest metropolitan areas, including D.C. As much as one-third of New York’s and Boston’s office and retail space is within walking distance of residences, the report says, and Miami, Atlanta, Los Angeles, and Denver are moving in that direction. Homeowners and tenants in WalkUPs can reach their jobs, schools, restaurants, and other daily destinations on foot.
Leinberger believes the trend has legs, and points to 40% to 100% price-per-square-foot premiums in these walkable urban suburbs, compared with neighborhoods nearby but not within a stone’s throw of the community’s main attractions. Even bands of single-family homes in what Leinberger calls the “penumbra” of a mixed-use suburban town center or main street—within about one-third of a mile, so still walkable—sell for 50% to 70% more than houses found just another block away that aren’t within comfortable walking distance.
“There’s a limit to how far people can walk,” Leinberger says. “That’s a regulator of this market.”
These second- and third-tier metros are nowhere near the heart of the big city, but Leinberger still calls them “great urbanism.” Millennials—adults in their 20s and early 30s—don’t want to drive to dinner or even to work, he says. Instead, they’re driving demand for the urbanization of the suburbs, a change that can happen anywhere, although the closer to downtown-bound public transportation, the better.
Leigh Gallagher, assistant managing editor of Fortune and author of the 2013 book, The End of the Suburbs: Where the American Dream Is Moving, agrees. To mitigate the risk a builder takes when venturing away from the city, she says, “proximity to a town center is really key. So is transit.”
She offers Palo Alto, Calif., a 45-minute drive south from San Francisco, as an example of “a thriving downtown village that’s an urban oasis” as a popular alternative to big-city living.
“People don’t necessarily want to live in Manhattan,” she says. “They want a little bit of Manhattan sprinkled right near them.”
StreetScape Homes president John McLinden learned that lesson when he stumbled onto a foreclosed lot ready for 31 townhomes on Floral Avenue in Libertyville, Ill., located about 40 miles north of Chicago. The historic downtown was already equipped with a commuter rail station, a charming main street, nightclubs that stay open until 4 a.m., and restaurants so popular that patrons will stand in line for an hour to get in, says McLinden, who fashioned a neighborhood of narrow, single-family homes on the lots and sold it out, mostly during the recession.
Next, he built a similar suburban infill project in Skokie, Ill., using a design that maximizes space and allows home buyers a generous amount of customization.
Both communities are walkable and represent “suburban locations with the coolness factor of a city,” explains McLinden, who plans to partner with builders around the country to bring StreetScape-style homes to other suburban infill locations.
Sprawl Is Over
For the sake of profits—and creating a buffer between them and the next housing crisis—even builders who have found success with the walkable suburban model concede that building as close as possible to a thriving major city is smart business. The downside of that, of course, is that building close-in is expensive—and the sales prices of the resulting homes are too high for many of the young singles who would like to live there.
Adam Hieb, vice president of sales and marketing for Shea Homes’ Northern California division, calls his company’s decision to move from its pre-recession suburban focus to a “stay close; reduce your risk” philosophy a good one. Yet he realizes that not everyone who works in Silicon Valley can afford the mortgage on a Bay Area home.
And he discovered that plenty of young techies who can’t live without the amenities of a city are willing to commute an hour or even two each way for work to get those urban perks—as long as affordability isn’t the only thing they’re trading for that sacrifice.
Shea has ventured fairly far from downtown San Francisco to break ground on 1,500- to 2,500-square-foot single-family homes in the beach community of Marina, Calif., more than 70 miles from Silicon Valley and more than 100 from downtown San Francisco.
The selling price: $300 to $400 per square foot, half the cost of real estate in the heart of Silicon Valley. “In this case, living at the beach is cheaper than living in Silicon Valley,” Hieb notes.
Likewise, the builder has 2,300- to 3,900-square-foot homes in the already-developed Mountain House master planned community, also an hour away from Silicon Valley. At $200 a square foot, homes are considerably more affordable than comparable urban abodes, but the local school system is top-notch, which eases the pain of the commute for many of the young parents who have bought homes there.
Both communities have their own “core centers,” teeming with restaurants, stores, and entertainment venues, features that satisfy the cravings of homeowners who would prefer to live downtown but can’t afford it, Hieb says.
“Sprawl is over,” says Leinberger, but that doesn’t mean the suburbs are dead. He says the right combination of urban amenities, transportation, and walkability will attract home buyers to nearly any suburban location. In fact, he estimates that 60% of all real estate demand for housing will be in the “urbanizing suburbs,” at least for a generation.
Still, targeting these areas is not inexpensive, Leinberger warns.
“Taking on a walkable urban on the fringe is not for the faint of heart. You need capital or you’ll go under,” he cautions. “If you build it, they will come; but build it right and build it big.”
