Urbanization and Real Estate Trends: A Brief History

urbanization and real estate trendsAmericans are moving into urban regions in larger numbers than ever before. The vast majority of the estimated 320+ million Americans now live in crowded metropolitan regions. Real estate agents and investors need to learn more about how and why these urbanization trends are increasing.

Americans have bounced back and forth between rural, urban, and suburban communities in search of better paying jobs and improved lifestyles over the past few hundred years. One of the primary factors was access to better transportation systems with new roads, streets, and highways. To better understand these urbanization trends today, we must first take a look backward before moving forward with new real estate strategies.

Urbanization in the USA: the early years

Prior to the Industrial Revolution, the vast majority of Americans lived in small, rural communities where their daily existences revolved around ranching and farming. As the Industrial Revolution moved forward in the 1700s and 1800s due to advances in transportation with shipping, steamboats and steam engines, and railways, then more jobs were created in industries like textiles, furniture and tool manufacturing, power machinery, food distribution, and steel production. Before these inventions, raw materials and finished goods were distributed by way of horse-drawn wagons and by boats along rivers and canals.

The banking and communication industries flourished shortly after the foundation of the New York Stock Exchange in the 1790s. By the mid-1800s, the USA and Great Britain led the way worldwide with the growth of businesses, communication systems like the telegraph, financial markets, and eventually in the field of real estate.

With real estate, job market trends and the access to capital have historically been two of the most important catalysts for a booming real estate market.

According to the very first U.S. Census report completed in 1790, 95% of U.S. residents lived in rural regions with population bases under 2,500. The 5% of Americans in areas classified as “urban” (2,500+ residents) lived in small villages near New York City, Boston, and Philadelphia. By 1830, urban regions grew at a faster pace than rural regions. Urbanization was in swing.

After 1890, the Industrial Revolution helped pave the way, both literally and figuratively, for improved access to larger U.S. metropolitan regions with advances in transportation design from people like John McAdam, a Scottish engineer, who developed the early version of a smoother, less muddy, and more durable road construction paving process in the UK. Between 1870 and 1920, the number of Americans living in urban cities increased from 10 million to 54 million. These transportation advances are partly to thank for the rise in urbanization during that time.

It wasn’t until 1920 that the total number of Americans living in urban areas surpassed the combined number of rural residents.

The Industrial Revolution helped raise the standard of living for a higher percentage of Americans. It also attracted them into the urban areas where the highest paying jobs were located. The middle and upper classes rapidly increased in these urban regions, right alongside the development of residential and commercial real estate properties. In the early 20th century, the United States became the world’s leading industrial nation with New York City and the rest of the Northeast leading the way.

From urbanization to suburbanization

U.S. metropolitan regions rapidly grew in the early years of the 20th century in the Northeast and Midwest, such as in Chicago. Urban neighborhoods were designed to be very pedestrian-friendly locations where one could walk to work, schools, and restaurants. Affordable urban transit systems (e.g., subways, buses, trains) helped stimulate urbanization as well.

It wasn’t until the end of “The Great Depression” era (1929 – 1939) and World War II that the flight from urban regions to more suburban areas began to increase. More Americans perceived safer and higher quality lifestyles out in the suburbs. The demand for housing increased along with prices after World War II. This was due to increasing family sizes as more Americans had children in the early “Baby Boom” years (1946 – 1964). Some people were then priced out of urban centers, and the suburbs became the more desired location.

Many Northeastern residents moved out to new suburban communities out in Long Island, New York, Allentown near Philadelphia, or elsewhere. These first mass-produced single-family communities in the suburbs were modeled after the Ford Motor Company’s automobile assembly lines, with multiple workers performing the same exact building tasks repeatedly such as framing, cement work, plumbing, and painting. Levittown’s “cookie-cutter” homes with Cape Cod and California Ranch styles weren’t much larger than the average sized 800-square-foot apartment in New York City.

What really inspired the suburban housing boom was the improved access to more affordable mortgage funding offered by governmental agencies such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs). The single most important factor in a “booming” or “busting” housing cycle is the access to available and affordable capital. Homeowners could qualify for homes with as little as no money down to just a few thousand dollars down and receive fixed monthly mortgage payments lower than many apartment rents.

After World War II, both FHA and VA either insured or guaranteed upwards of 11 million new home mortgages. Additionally, the U.S. government built 41,000 miles of new interstate highways. This shortened the drive time from suburbia to urban city jobs. Popular television shows in the 1950s like Ozzie and Harriet, Leave it to Beaver, and Father Knows Best glamorized the suburban family lifestyle. As such, living in suburbia truly became the “American Dream” with the percentage of Americans living in suburban regions increasing from 27% in 1950 to peaks near 50% by the end of the 20th century. Homeownership rates also climbed from 43% in 1940 to 65–70% in the early years of the 21st century.

From suburbanization to urbanization

Millions of suburban, rural, and urban single-family homes, condominiums, and townhomes have been foreclosed upon since the official start of the “Credit Crisis” back in August 2007. As a result, many of these displaced former homeowners have been moving back to big cities (partly in search of better paying jobs) while urban vacancy rates have plunged. Hence another rise in the trend toward urbanization. The USA is considered as one of the most urbanized nations with upwards of 81% of the population residing in cities, suburbs, and other regions with more than 50,000 residents as of 2014. Worldwide, the urban rate for nations is near 54%.

The U.S. Census Bureau identifies two distinct urban regions. First, “urbanized areas” are defined as areas with more than 50,000 residents. Second, “urban clusters” are defined as areas with populations between 2,500 and 50,000. The 2010 U.S. Census Bureau listed 486 urbanized areas and 3,087 urban clusters nationwide.

The following population statistics help demonstrate regional and overall urbanization trends across the U.S.

The top five densely populated urban regions

  1. Los Angeles-Long Beach-Anaheim, California – Almost 7,000 people there per square mile. A square mile consists of 640 acres. These figures represent almost 11 people per acre (43,560 square feet / acre) in Southern California.
  2. San Francisco-Oakland, California is the second most populous region with 6,266 people per square mile.
  3. San Jose, California is third overall with 5,820 people per square mile.
  4. Delano, California (Bakersfield / Kern County region) is fourth with 5,483 people per square mile.
  5. The New York-Newark, New Jersey region is fifth with an estimated 5,319 people per square mile.

Nine of the ten most densely urban regions are located in the West; seven of these regions are located within California. California is the most urban state nationally with 95% of residents in urban regions. The average U.S. population density for all urbanized areas was reported to be 2,534 people per square mile.

 

The top three urban population regions

  1. New York-Newark, New Jersey: 18,351,295
  2. Los Angeles-Long Beach-Anaheim, California: 12,150,996
  3. Chicago, Illinois: 8,608,208

 

The three fastest growing million+ population centers (2000 – 2010)

  1. Charlotte, North Carolina / South Carolina regions – 64.6%
  2. Austin, Texas – 51.1%
  3. Las Vegas / Henderson, Nevada – 43.5%

 

Most populous urban regions nationally

  1. West – 89.8%
  2. Northeast – 85%
  3. Midwest – 75.9%
  4. South – 75.8%

 

Historical urban and rural population percentages

Year              Urban             Rural
1800                6%                   94%
1810                7%                   93%
1820                7%                   93%
1830                9%                   91%
1840                11%                 89%
1850                15%                 85%
1860                20%                 80%
1870                26%                 74%
1880                28%                 72%
1890                35%                 65%
1900                40%                 60%
1910                46%                 54%
1920                51%                 49%
1930                56%                 44%
1940                57%                 43%
1950                60%                 40%
1960                63%                 37%
1970                74%                 26%
1980                74%                 26%
1990                75%                 25%
2000                79%                 21%
2010                81%                 19%

* Source: U.S. Census Bureau

 

In many U.S. regions, the metropolitan cities and outward expanding suburban communities are merging into areas defined by some as a “Megalopolis.” No matter what description is given to these emerging “Supercity” regions, the urbanization trend is clear. Americans are living closer together in urban cities as opposed to less crowded rural regions. Current and future “high density” zoning and development trends (i.e., high-rise “sustainable living” micro-apartments) will continue to make the USA more urbanized than ever before, and will continue to impact the real estate market.

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