The Mega Trend that is Challenging the American Dream

If you're reading this, there's a pretty good chance you live in an urban metropolis. Face it, you're a professional, and there's no denying that you have access to jobs you couldn't find anywhere else. Maybe you classify yourself as an artist or entrepreneur, and you too know that without access to people, culture and ideas that cities offer, you wouldn't have a chance.

Across the country, cities are facing unprecedented population increases, and coupled with low housing inventory, it's resulting in exorbitant housing costs that are keeping people from securing their financial future.

Personally, I've always held a bias towards city living, having grown up in New York City over the past 20 years. I've been witness to the numerous boom and bust cycles. It's amazing how resilient people are. They come from all across the country and world to get a slice of the action and make a better life for themselves. Or should I say, that's what they hope for.

There's a mega trend impacting the entire United States right now, urbanization.

People are moving into cities in record droves. According to Census figures, between 2000 and 2010, the nation's urban population increased by 12.1%. More simply put, in that time frame, tens of millions of people have moved into cities. Since 2010, that trend has surely continued to speed up, particularly due to our climb out of the recession and improving job market.

The NYC urban metro area alone has increased from 18.4 million people to 20.1 million between 2010 and 2014 according to Census estimates. This represents the largest urban population in the United States right now, followed by Los Angeles. The impact of this growth can be perceived as evidence of our nation's flourishing economy, and don't get me wrong, it surely is. However, this trend also has negative externalities which have yet to be fully considered.

With so many people living in cities, the inventory for housing is at an all time low, both in the rental and purchase markets.

Let's go back to the root of the problem here. Leading up to 2008, developers in cities like NYC were building at furious paces to keep up with demand. Property valuations were at all time highs and no doc mortgages were the flavor of the time. The Wolf of Wall Street had been set on the loose. 

Soon enough, the global economic meltdown began to rile the markets and banks around the country failed. Along with this failure came work stoppage on housing construction. Large apartment buildings stalled mid build. Giant construction pits littered cities. When the economy picked up again several years later, and people restarted their migration to their city of choice, there wasn't a whole lot of inventory to choose from. Mega projects were restarted, and instead of providing middle class living opportunities, developers went straight for the high-end luxury market, untouchable by most, but a favorite amongst foreign investors. 

So what do I see now in NYC? Skyscrapers with $10 million dollar apartments that stay empty all but a few months a year. High rents that are forcing people to live in less desirable neighborhoods with poor infrastructure, such as access to transportation and grocery stores. Challenging times for first time homebuyers who want their slice of the American dream. As rents continue to climb, it gets harder for individuals to save, which will make it harder for them to buy, all the while needing to deal with record property appreciation of the past five years. 

People are on a hamster wheel, just trying to keep up. They will be less inclined to take risks and pursue business opportunities because they're being crushed by their cost of living.

Societies that encourage risk aversion en masse have the potential to stifle and kill economies. Without property ownership opportunities, wealth creation for future generations will be limited.

So how can the cycle be broken? Bringing down the cost of living will be key, which will improve the rate of saving. In cities like New York, there are numerous lower cost neighborhoods which are having renaissances of sorts, with vibrant communities flourishing around artists, entrepreneurs and professionals. 

The irony is that the more popular a neighborhood gets, the more expensive it becomes, but instead of chasing the trend, people can be part of the trend, pioneers in a sense.

In a previous post, I outlined the power of chasing the art. Whether renting or making a purchase, looking for neighborhoods which are on the periphery of established neighborhoods will ease pricing pressures while also providing for access to desired amenities. More to come on up and coming neighborhoods in NYC in a future post.

As you read this, developers across the country are struggling to keep up demand. Some construction sites are operating day and night at a feverish pace. As the trend of urbanization continues to overtake cities, and housing inventories continue to stay low for the foreseeable future, consider the impact that it will have on your future.

What do you think are the optimal solutions for this supply and demand issue? Incentives? Intervention? Post your comments below and join the conversation.