Date: July 17, 2015
The Great Divider in Practice Areas – Podcast
Listen to the Podcast here:
Session 26: Housing Type, Great Divider. Apartments and City Reformation
Welcome to the Perfect Place to Put a Practice Podcast. This is Scott McDonald.
As you know, as soon as we see a trend forming that is going to influence where you should (and should not) put a practice, we want to bring it to you in a podcast. Actually, we are pretty careful about these recommendations and want to make sure that the trends we are seeing have also been demonstrated in the research sources we use. In this case, that is definitely true. Granted, we are likely quite a bit ahead of the information you will see otherwise in the media.
Keep in mind my staff and I are evaluating sites in every state in the Union and we are detecting changes in real time. If it is a highly localized trend we will make a note of it for future reference when we are evaluating other sites in a particular location. But when we see a trend occurring in many locations at the same time, we want to bring it up.
The trend to which I am referring now has to do with the way that new growth and development in cities is coming together. There was a time not so long ago in which all the new residential properties were being developed in reclaimed farmland surrounding city centers. These developments were primarily made up of single-family dwelling units. They were typically three bedrooms with two baths and connected to the city center with a freeway connection no more than 10 minutes away. This had the effect of increasing traffic on the freeways and causing pollution. The transition was to encourage light-rail systems to replace or augment the freeways. Light rail was considered less polluting and a great investment for the cities where they were found. These light rail arteries are extremely expensive to operate. Cities quickly found that it was not economical to continue to develop them without significant infusions of cash in the form of matching funds from the Federal Government. These rail projects have always carried with them a political agenda that have rarely lived up to their hype in terms of the amount of traffic carried, pollution reduced, or economics. A great example is found in Sacramento, California where the light rail continues to be a boondoggle that has benefited some government constituencies at the expense of tax-payers. Even those locations that would normally be considered the perfect places for such developments such as Washington, DC and Chicago, IL have had a hard time justifying their costs in the outlying areas.
For this reason, city planners have planned a full-court-press to encourage developments in the inner city. Their reasoning is that if they can move people back into the city centers, those locations that were once abandoned to inner-city blight can be rejuvenated. This requires the abandonment of suburban transportation projects in favor of down-town quality of life efforts. This means more shopping in the inner city and more office-space close to where people live. The housing projects tend to be high-density residential units that are rented, rather than sold. This seems to be the trend in city planning that we want to discuss.
As recently as 2007, the primary goal of residents in most U.S. cities was to own their residence. This was true of ALL housing types. But with the collapse of the housing market as well as the credit institutions that funded them, there has been a great pace toward renting. This trend is exacerbated by the increase of gasoline prices. Long commutes are still a part of the lives of many workers but it is decidedly fading as a lifestyle model. Environmental interest seem to be dead-set against expanding roadways which they consider the source of Global Warming and other evils of the modern world. Financial restrictions on commuter rail projects are crimping this model as well. The result has been greater and greater demand for rental housing units in city centers. In Florida, for example, condominium units are being purchased by the land developers who build them in order to gain control of these residential units in order to make them more marketable. Those who purchased the condominium units for hundreds of thousands of dollars are being squeezed out in order to make room for renters.
The demand for rental units has make locations throughout the United States become much more expensive. In Nashville, for example, monthly rents have risen as much as 22% in just two years. The same trend is being seen in Raleigh, NC, Louisville, KY, Columbia, OH, St. Louis, MO, and Atlanta, GA. While these gains are high, they are still far below Miami, San Francisco, and New York. What YOU as a doctor have to know is that this trend is not caused by an increase in population. Rather, it is a displacement of existing population that is causing it.
The upshot is this: while many doctors see these new buildings, they assume that it is caused by a large, new population moving into the area. They are not. People are merely giving up their suburban lifestyle for a more metropolitan one. The birth rate is actually smaller than it has been in decades. Some people believe that immigration is going to save them. Unfortunately, the vast majority of immigrants are not paying taxes and are not likely to do so for generations. They also do not have the same health care habits as the population they seem to be displacing.
Another aspect of this trend is completely unreported in the news. But for those who have a healthcare practice it is important to note: People who live in apartments always have smaller families. Those who live in owner-occupied, single family dwellings tend to have larger families than their renting friends. Therefore, while it may appear desirable to follow the trend into the inner city, especially for those practices that depend upon children and families, it is not the direction to go.
Are there opportunities in the inner city in healthcare? ABSOLUTELY! Any time that a population shifts from one place to another, there is an opportunity. Downtown offices are often far easier in gathering and maintaining a patient base. That is because people tend to work, shop, and live in a smaller area. Just as in the days that communities were small towns that one could walk across in a short time, these inner city centers are becoming a kind of tight-knit community with a distinct identity. Where signage has become impractical in many suburbs, they work better in these densely populated areas. It is wise to recall that on subways and buses, less than 9% of riders bring reading materials. Instead, their eyes search the posters and flyers above them. Direct mail can be simplified as well. It is generally true that office space will be more expensive per square foot. This will force offices to be more careful in how they layout the office, operatories, and waiting areas. But this increased efficiency can be helpful as well.
But there are facts that the renewed urban centers are causing.
- The population in the cities is becoming more homogenous. This especially true in terms of family structure. Families with children are becoming rarer and rarer. When there are children, the households tend to be smaller than their suburban counterparts. The percentage of single residents is becoming far greater in these cities than in the suburbs.
- While most people are unaware of it, households with children tend to spend many times more on “stuff.” Whether it is furniture, paint, lawn mowers, or clothing, the suburbs have less economy.
- With the increase in rents which seems to be a ubiquitous factor, the amount of disposable income left to invest goes down. Inner city residents, particularly singles, eat out much more often than their suburban or rural counterparts. A much greater percentage of their income goes to their “lifestyle.” This is not a good or a bad thing. It is simply true. People who live in densely populated areas are more at the mercy of their environment whether it is the cost of renter, the price of food, utilities, and transportation than those outside the city. Not being forced to own and maintain a car may appear to be a savings when contrasted with bus, train, or cab fare. Nevertheless, there is a trade-off including how easy it is to get to a particular doctor’s office.
It should be kept in mind that the present government in Washington is strongly in favor of building up the inner cities for political reasons but we don’t see that this is important except to note that market conditions alone are not driving this trend. And, of course, like every trend, this one can be reversed. If the economy rebounds as so many economists have expected, it could encourage a trend back to a less densely populated lifestyle. No trend is irreversible.
If you would like our help recommending or researching locations for your practice, please give us a call at (800) 424-6222 or look us up at www.DoctorDemographics.com. This is Scott McDonald.