New Home Insights Podcast Episode 4 Transcript | John Burns Real Estate Consulting


Episode 4: Let’s Talk Surban™

Transcript

Dean Wehrli:

Welcome to the latest episode of New Home Insights by John Burns Real Estate Consulting. I’m your host, Dean Wehrli. With me is a very, very… you know what? Three very’s special guest, Chris Porter. Say hi.

Chris Porter:

Hi, Dean. Thanks.

Dean Wehrli:

Chris is a demographer. He’s our demographer and a researcher here at John Burns Consulting, for quite a while as a matter of fact. Am I right?

Chris Porter:

13 years.

Dean Wehrli:

Goodness. Unlucky 13.

Dean Wehrli:

Today, we’re going to talk about a concept that Chris and John kind of invented and appeared in their best-selling book, Big Shifts Ahead. I’m going to give it the word best-selling there. I think that’s fair. It’s called surban. Let’s start with just definition of that concept. Chris, what is surban?

Chris Porter:

Sure. I don’t think it’s necessarily a concept that we invented, but we wanted to re-term it. I think urban planners often use the phrase mixed use project and, quite frankly, who wants to say that they live in a mixed use community?

Dean Wehrli:

Yeah, it’s like brag.

Chris Porter:

Exactly. Leslie Deutch, actually, our consultant in Florida, came up with the term surban, the idea of bringing the best of urban conveniences to traditionally suburban environments.

Dean Wehrli:

Conveniences in terms of the housing product? In terms of access to retail? What’s the idea?

Chris Porter:

It incorporates a number of different things. It’s lifestyle, the idea that urban environments traditionally don’t have great public schools and the suburban environments do. That’s actually why you see a lot of families, once they start to have kids, they move to the suburbs really for school quality. So that’s a big part of it. You’ve got lower crime in the suburban areas than you would have in urban areas.

Chris Porter:

But also, at the same time, in urban areas you’ve got some walkability. You’ve got some rideability if you’ve got bikes. You’ve got public transportation. So, bringing some of those things to the suburbs, in small downtown areas, is really the concept that we see for this concept of surban.

Dean Wehrli:

Where specifically in suburbia would you most likely see suburban and where would it most likely work? Would it be near, like you say, walkable to retail, like a town center? Is it also a mass transit issue even in suburbia? What are the characteristics in a suburb you’re looking for?

Chris Porter:

You will see this popping up around transit hubs, but I think there’s an element of some of these could actually have their own public transportation, bus services that would run. It is in the downtowns of these small suburban cities and it’s just kind of a reemergence of the city investing in the downtown of their own little city.

Dean Wehrli:

Yeah. Those classic big city downtown amenities that people like, like walkability to great retail, to entertainment venues, things like that, to the degree that they have those in a suburb you have the chance of surban?

Chris Porter:

Exactly.

Dean Wehrli:

Okay. But to the degree that the classic bedroom community and they just don’t have that old core downtown, even in that otherwise suburban environment, you’re less likely?

Chris Porter:

Probably less likely. You’re right.

Dean Wehrli:

How about… any examples? What are some good examples of where surban has worked and we’ve seen it work?

Chris Porter:

Well, right here in Irvine, California where we’re based, we’ve got an example that I would call the Irvine Spectrum would be a pretty good example of surban. There’s the element that you can shop, you can work, you can live all in the same area. You might not need a car during the week, but you’re probably going to want a car on the weekends if you want to get out of town. That’s one example.

Chris Porter:

Another local example here in Orange County, the Anaheim downtown. Right around Angel Stadium, where the Anaheim Angels play, sorry The Los Angeles Angels of Anaheim.

Dean Wehrli:

The Anaheim Los Angeles Angels of Los Angeles.

Chris Porter:

Exactly.

Dean Wehrli:

In Los Angeles, I believe.

Chris Porter:

Orange County didn’t really have a downtown, so they planned a lot of residential around some retail and entertainment. You’ve got the hockey arena right there. You’ve got the baseball stadium. The idea that you can create some walkable residential, retail mix that people would really gravitate towards.

Dean Wehrli:

You’ve seen that occasionally when folks try to, in that classic mixed use community kind of environment, but at least going from memory here, I’ve seen that where really they’re building residential and it’s next to a Home Depot/whatever, Hobby Lobby, and a few other in line and that’s not really what we’re talking about for that surban attraction.

Chris Porter:

You’re right. It’s not.

Dean Wehrli:

Not bagging on Home Depot. But the big box, that’s suburban retail. I think, I don’t know, what’s the right word? A quaintness or kind of a factor to the retail and the things that they’re walkable too?

Chris Porter:

I think that’s a great way to describe it, quaint is kind of your old school, downtown, Main Street area.

Dean Wehrli:

Can I get a tattoo and an antique?

Chris Porter:

Exactly.

Dean Wehrli:

If so, yes. Check and mate, you’re a surban dweller. But if all you can get is some wood and tools and things like that, no maybe not so much.

Chris Porter:

One of the things I would point out too is when you get to the residential component of surban, it is going to be a little bit more expensive, on a per square foot basis, that you would expect in the single-family detached home on a bigger lot because there is higher density, but it’s not going to be as expensive as if you’re in a downtown, true downtown, area in a major city.

Dean Wehrli:

Okay. That’s a good segue. Are there some hurdles to building surban, other than the locational stuff? What else would you say? Is it the cost? Is it the necessary price to make that work? What are the hurdles to building surban?

Chris Porter:

Consumers who can afford them love them. The high construction costs are going to force high home prices and rents in these, but again, I come back to it’s not going to be as expensive as living in a true downtown in a big city.

Dean Wehrli:

Does that mean it’s going to naturally appeal to somewhat more of… Okay, so if you think about it, it’s kind of a barbell demographic to some extent. Right? The urban product might appeal to younger couples, even singles, because it’s maybe not as family-friendly, even though the schools and the environment are. Then, also that low-maintenance living. Maybe that appeals to empty-nesters, move down, dual income no kids kind of buyers, maybe even retirees if you can have elevated service or something like that. Do you see it being that? Therefore, because it’s maybe a little bit more higher price on a per square foot basis, is it kind of, I don’t know, cut out the younger couples and trend to an older buyer profile, or no?

Chris Porter:

That’s a great point. We actually do see exactly what you’re talking about, that barbell. In fact, we do a consumer survey every couple years where we ask consumers what they’re looking for in their next home and we’re able to segment by age group and by lifestyle. We did ask this question in our last survey that just came out earlier this year. What we found is, this idea of a surban location, only about 37% of households with kids found this appealing. They probably want a yard for their kids and this concept of surban really doesn’t necessarily offer that.

Dean Wehrli:

What if their kids are really lazy and they know that and they don’t need a backyard?

Chris Porter:

They just stay inside-

Dean Wehrli:

They don’t like dogs. Absolutely.

Chris Porter:

… and play video games all day?

Dean Wehrli:

Give them a Switch and they’re good to go. Would that work?

Chris Porter:

We didn’t ask that specific question.

Dean Wehrli:

You didn’t get that. Okay.

Chris Porter:

But when we asked the younger households, who didn’t have kids, 61% said this is appealing to them.

Dean Wehrli:

Wow.

Chris Porter:

Then, we look at the older households, empty-nesters, your retirees, 55% of them told us that this is something that’s appealing to them. I think you’re right in that there’s sort of this barbell effect, that it’s appealing to the younger households and to the older households. If you’ve got kids, there may be a small segment of it that it’ll appeal to, but it’s not the majority.

Dean Wehrli:

Yeah. In true, I’ve definitely noticed this in doing our feasibility studies. In true urban environments, where it does get very expensive, it almost always skews older than often even that developer or builder was expecting because it’s just pricing out those relatively… Some areas, of course, like San Jose, they have a lot of younger, affluent folks. But for the most part, it gets pretty pricey in the true urban environment so maybe this is a way to get some more younger buyers into this kind of product. They want that product in a suburban, cheaper environment.

Chris Porter:

That’s a great point. One of the things that we saw over the last decade was really this pop in the urban living. A lot of that was actually demographic driven. You had a large population of people in their 20s and they are the ones who tend to live more urban. You also had a huge growth in the empty-nester population. A certain portion of them will tend to live urban as well.

Chris Porter:

I think as those groups start to think about affordability, as they start to think about potentially growing their families and wanting to move to the suburbs, this is a nice hybrid, a nice transition for them as they’re moving from the cities into the suburbs.

Dean Wehrli:

So it’s not the classic just entry-level person whose move up? It’s more of a product transition for them and then they might their next move. For the younger folks buying surban, their next move might be more suburban classic.

Chris Porter:

Exactly. It could be.

Dean Wehrli:

Any other hurdles though? These are often going to be effectively infill sites, aren’t they? That can sometimes be a problem getting that in title or getting that done. Have we have found that planning departments are willing to look at this? I know density has become a good thing for most planning departments. Any other kind of hurdles like that that we’re finding?

Chris Porter:

I think planning departments are looking at it, for the very reason you pointed out, is for density, but I think there’s also, at least in a couple instances that I can think of, maybe some push back by residents as well. We don’t fully expect that these surban environments are going to be all owner-occupied residences. There is going to be some renters in there and there is some perception that that’s a different resident in their community, that the idea of bringing more renters in the community. Does that bring my property values down? Does that create more traffic? That sort of thing.

Chris Porter:

There’s been some push back, I would say, by some residents, long term residents of these cities.

Dean Wehrli:

Kind of the classic NIMBY thing. Is it density too, you think?

Chris Porter:

Density could also play into that as well.

Dean Wehrli:

They don’t like that congestion. I remember back, years ago, Newport Beach, a very pretty conservative town and a very affluent town here in Orange County, they voted mostly it was a lot of slow growth initiatives. It was mostly based, at least argued, as a congestion issue, not the classic environmental whatever slow growth argument, but it was just pure congestion.

Chris Porter:

Sure.

Dean Wehrli:

So I can see that because surban is, by necessity, more dense than classic suburban product. Anything else? How do builders, developers… is this catching on? Have you gotten any feedback from those kinds of folks in terms of acceptance of this concept?

Chris Porter:

Yeah, and I think what’s been really interesting as we’ve watched this pop up, it is some prime real estate that is becoming available. As we look at some malls that are closing down or just reuse of properties that maybe have been abandoned, it’s a great way to get those infill sites in suburban areas that really are prime real estate. I think that is appealing to the builders.

Dean Wehrli:

Yeah, and this case is kind of a win-win because it gets them a density that builds that gross revenue from that site than having five or six thousand square foot traditional lots might do in these infill reuse kinds of sites.

Chris Porter:

Exactly.

Dean Wehrli:

Where does surban not fit, even within suburbia? Do you want it to be the retail to be real, to be authentic? I mentioned, kind of flippantly, building next to a Home Depot or whatever. Could that work?

Chris Porter:

It could. I think there are some areas where it may not work if you just plop a bunch of big box stores in there and put some houses up and call it a community. I think people want to feel authenticity of it. You may not be able to get just the traditional Main Street look and feel that you’re going for, but I think that people do want it to feel like a community, rather than just another strip mall.

Dean Wehrli:

Yeah, but you’re pretty big on surban, right?

Chris Porter:

I think it is really the blending of urban and in the suburbs is sort of the wave of the future as we’re moving forward.

Dean Wehrli:

Just how gung ho are you? Would it work, for instance, in a Mad Max post-apocalyptic hellscape kind of environment? Would you still be in favor of surban there? I’m going to test your limits here.

Chris Porter:

I think there’s going to be a certain population that’s going to appeal to.

Dean Wehrli:

If you can get the gas to get out to that suburban environment, you’re going to go surban in the Mad Max world, is that what you’re saying? Would Mad Max live in a surban house? Yes or no? Go.

Chris Porter:

I think you’re putting words in my mouth.

Dean Wehrli:

Well, anything else that you want to say about surban? Let’s end with this. What do you see here in the next five, 10 years? Do you see folks getting onboard and expansion of surban?

Chris Porter:

I think as we look at how the real estate environment is going to be changing over the next… I don’t know… 10, 20, 30 years, I wonder about driverless cars. If people don’t have to own a car and they can just have someone pick them up or have a vehicle pick them up by themselves, would that drive some of this development? And would prime real estate that’s currently being used for parking lots, that’s being used for auto dealerships, that’s being used for gas stations, would some of that disappear and we could potentially turn those into these mixed use or surban environments where you’ve got that mix of retail, of residential, and jobs too?

Chris Porter:

That’s one of the other things that I don’t think we’ve talked about a lot too is that there is a potential to have jobs that you could literally walk, shop, work, and live all in the same environment and, like I said, not even really need a car necessarily during the week.

Dean Wehrli:

It could even work the other way though, couldn’t it? That is to say if one of the draws is being around urban or urban-like amenities and we now live in the world of Uber and Lyft and driverless cars, if someone wants to live in a true suburban product and environment, it makes it much easier to go into the true urban environment. In other words, it’s easier to go do things in downtown, core areas, in the future and now than it was years ago and still living in the suburbs. Right?

Chris Porter:

True. You could say the same for rural living though too so that driverless cars would make it easier to live in truly rural areas. If you’re not having to do that hour and a half or two hour drive into the job centers or into where the entertainment is, if you don’t have to do that driving yourself, if a car could do it for you, but we really haven’t seen rural coming back. Rural continues to shrink as a percentage of the growth in the US.

Dean Wehrli:

It does. But suburbia is closer, more accessible to those. In other words, what I’m saying I guess, is that I’m living in the surban house out in the suburbs because I’m near these great urban amenities. I can go to the real thing, the real core downtown urban amenities so much easier than I used to and that I don’t think that holds true for rural areas because they’re too far out.

Chris Porter:

True.

Dean Wehrli:

That Uber drive or whatever is more realistic from a suburban environment than it is from a rural environment.

Chris Porter:

True. You’re probably still going to have to deal with traffic, but it’s not going to be you driving.

Dean Wehrli:

But someone else is driving.

Chris Porter:

Someone else has to worry about that.

Dean Wehrli:

You’re on your tablet or whatever, figuring out where you’re going to meet, what pub, what fantastic brew pub you’re going to.

Dean Wehrli:

Okay, anything else you want to mention about surban?

Chris Porter:

One of the things I was thinking about is… you’re in northern California… some examples that you can think of in northern California where maybe this is being played out.

Dean Wehrli:

There is actually a couple good ones. Santana Row, in fact you guys mention it in your book, in the book that you and John wrote, and San Jose is a roughly suburban environment. It’s funny you say that because I used to use the phrase, in a different way, suburban urban. What I meant was those kind of transition areas that they’re not really suburban but they’re not really urban yet either. There are lots of areas in the Bay Area where that’s true. Almost the entire San Mateo County and Santana Row kind of fits that.

Dean Wehrli:

You guys… and I was a sucker saying all those syllables… you guys shortened it to just surban, but the concept is very different. The other one is in Larkspur, which is a true suburban environment up in northern California in Marin County. That’s where the New Home Company built some pretty dense urban stuff. They have flats, very small lot detached in what’s otherwise a very suburban environment and it was a huge success. It wasn’t super walkable either, so there might be some opportunity for what we think of as surban product that’s not necessarily has to be walkable. To some extent, you like living in a suburban environment, but you want that low-maintenance product. There’s opportunity for that too.

Chris Porter:

Sure. You asked if there’s anything else that I wanted to mention. One of the things we’ve been excited about is to see how people are starting to use the word surban.

Dean Wehrli:

Oh, yeah.

Chris Porter:

We coined it.

Dean Wehrli:

Trademarked. TM.

Chris Porter:

We actually did put a trademark on it, but-

Dean Wehrli:

Should we have been saying surban TM this entire time?

Chris Porter:

… No.

Dean Wehrli:

Okay.

Chris Porter:

We said anybody’s welcome to use the term, but we just wanted to trademark it. But we are seeing it used and, actually, there’s some communities and builders out there who are using it in some of their marketing materials as a way of describing the communities.

Dean Wehrli:

Wow. I bet they’re not using three peat. They got to pay Phil Jackson for that. If you can get Phil Jackson money out of this, you should probably do it.

Chris Porter:

We do think it’s a term that’s starting to catch on and I think once you start explaining it to people, it does ring a bell, it resonates.

Dean Wehrli:

It makes innate sense. Absolutely. Yeah. Everybody’s like, “Yeah, yeah, yeah.” Like you said earlier, it’s been done before. Absolutely. But I think we will see a lot more of it, just for that aging demographic that’s true throughout the country. To the extent you can make it friendly, the product, to those older buyers, I think you have it great because it’s so low-maintenance, it can be really good product, and not everyone wants to live in a true urban environment, even if they don’t have kids that go to school.

Chris Porter:

That’s right.

Dean Wehrli:

Well, thank you, Chris. Let’s do a quick recap. Our topic today was surban, the concept of these relatively more urban, denser kind of housing product in more suburban areas. It’s probably best done in a town center or something where there’s some walkable, cool or quaint retail or venues, entertainment venues, things like that, as opposed to big box kind of stuff.

Dean Wehrli:

Some hurdles, the biggest hurdle I heard you say was that NIMBY-ism, where some of the locals might not get it, or may be a little worried about who’s going to be moving in into that surban environment. Then, in terms of going forward, I think we agree. It’s something that’s here to stay. It’s not going to be a bread and butter product in the housing market, but it’ll be a key one that I think grows for quite a while.

Chris Porter:

I think you’re right.

Dean Wehrli:

Right on. All right. Well, that was the latest episode of New Home Insights with John Burns Real Estate Consulting. Find us on our website, realestateconsulting.com. Great name for a website, by the way. And also on Twitter, which is @JBREC, J-B-R-E-C. We will tweet you. Hopefully, as you’re looking at that right now, you’ll see a tweet about surban. All right?

Chris Porter:

That’s right.

Dean Wehrli:

See you later. Next time.

Chris Porter:

Thanks, Dean.

 

 

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