Global Trend

The Young and Hip Are Discovering the Small-Town Advantage

There has been a great deal of talk about the housing boom lately and whether or not the bubble will burst. (Recent figures indicate that it won’t.) But what’s not being talked about much is how the rising cost of housing is driving young people away from the large urban areas, such as New York, San Francisco, Boston, and Chicago.

In the past, it has been a revered tradition for young people just out of college ? especially those young people who wished to pursue a career in the arts ? to move into cheap housing in big cultural meccas like New York and then work their way up.

But a policy research group in New York called The Center for an Urban Future and the economic development consulting firm,Mt. Auburn Associates, recently reported that artists and other creative workers are leaving New York for other cities, because The Big Apple is just too expensive.

Meanwhile, recognizing the trend, Mayor Michael Bloomberg is trying to establish 65,000 new affordable housing units across the city, according to USA Today.

A report from the Brookings Institution shows that young people are moving away from the big cities into more affordable markets just to make ends meet. For a New Yorker, this may mean going to Hartford, Connecticut, or to Philadelphia.

The reasons are complex, but aggressive speculation in city-center real estate has certainly had an influence. In the U.S., the median price of a single-family home is $218,000, according to the National Association of Realtors. In San Francisco, it’s $721,900 ? or three times the median. In New York it’s almost half a million dollars, not counting Manhattan. Boston is in the same league. And rents aren’t cheap, either.

What this boils down to is that if a person earns the median income, he can’t afford to buy a house or condo and may not be able to rent an apartment, either. Today, only 2 percent of the homes in Los Angeles are within reach of the median income earner. In Boston, the figure is 24 percent, but that’s still discouraging to young people on their way up and trying to save.

The reasons that real estate prices have skyrocketed vary from place to place. For example, in Silicon Valley, the tech boom pushed prices up, and they didn’t come down after the bust. Manhattan prices have always been pushed in an upward direction, because there’s no place to expand on an island. But in most places, they have been driven up by speculation and hype.

The move toward turning old factories into trendy new condos within walking distance of urban centers attracted a lot of aging Baby Boomers who had previously lived in the suburbs. With fat retirement funds and more time on their hands, they found the lure of the city irresistible. In short, the parents moved in, and the kids moved out. That’s why people are talking about Philadelphia as New York’s “next borough.” In fact, Web sites like Phillyblog are cropping up specifically to help New Yorkers and others make the move.

The same is happening in other areas of the country. And it’s driving another trend, because corporations are losing their best talent to the exodus.

The fact is, our economy has come to depend on talent and brainpower much more than at any time in history, and the traditional source for keeping that talent pool rich is young people. They come out of college, move into corporate jobs, move up the ladder, and ultimately run the economy. If they’re bailing out before they can even get started, it’s going to result in a talent drain that companies simply can’t afford when their global competitive advantage depends on that talent.

Consider the example of Elizabeth Howie, 27, whose plight was described in USA Today. She tried to make a go of it in the traditional way when she graduated as a science major from UCLA. She took a job as an account manager for a company in Palo Alto called LiveOps, which sells teleservices. She knew she couldn’t afford to live alone in San Francisco on her $60,000-a-year salary, so she found two roommates to split the $4,200 a month rent for an apartment.

Gradually, the high cost of housing simply wore her down. She saw that her friends who lived outside the city were able to buy homes. She knew she would never be a homeowner at the rate she was going. She quit her job and moved to Sacramento. It certainly wasn’t as interesting as San Francisco, but she was able to buy a three-bedroom house with a yard for $390,000. Moreover, she saw its value increase by $50,000 in just six months.

In Sacramento, she found an enclave of young, talented professionals who had fled the high costs of living in coastal California. Her boyfriend opened a restaurant to serve them. In this way, she and her fellow transplants began the transformation of this smaller city into a more cosmopolitan one.

And this is when the other transformation took place: LiveOps gave Howie her job back after instituting a new policy to help deal with the talent drain. The company now lets its employees work from anywhere they like. This, of course, is possible because the technology has advanced far enough to make telecommuting realistic. So, although the company is still based in Palo Alto, LiveOps now has workers as far away as the Midwest. Howie telecommutes most days and drives the 90 miles to Palo Alto every other week.

At the same time that businesses are changing and moving to accommodate the workforce, these shifts are accelerating workforce changes. For example, young people are being pulled out of city centers because many corporations have moved to the periphery ? not simply to get the best workers, but because land, buildings, and taxes are cheaper there.

For example, America Online and Oracle have moved out into the countryside near Washington, D.C.’s Dulles International Airport, thereby attracting thousands of young people to employment and housing there. Likewise, Nike locates its headquarters in Beaverton, Oregon, 20 minutes outside of the trendy and relatively expensive city of Portland.

This wave of former urbanites, in turn, is driving a new housing market, as condos and apartment buildings go up in far-flung suburbs ? such as Naperville, west of Chicago; and Long Beach, south of Los Angeles. That in turn attracts restaurants, movie theaters, bars, and coffee houses. As a result, many suburban strip malls that were dying just a few years ago are now being revitalized by hip new stores aiming to serve those young people.

The same thing is happening to many smaller towns, such as Utica, New York, that are not specifically associated with a larger city. In fact, researchers at Stony Brook University in New York reported that 70 percent of the people in the 18-34 age bracket who live on Long Island are planning to leave, an increase of 8 percent over last year. The reason? They can no longer afford the New York metro area and have no hope of buying a home if they stay. In fact, 45 percent of them were living with their parents, up from 31 percent just last year.

According to USA Today, that’s driving people like Jill Markward, 25, to places like Hollywood, Florida. She lived on Long Island with her parents after college. As a flight attendant for JetBlue Airways, her choices were JFK International Airport, which is near her parents’ home, or Hollywood, Florida.

It wasn’t that difficult of a choice. On Long Island, she could get a bare basement room for $1,200 a month. In Hollywood, near Fort Lauderdale Airport, she could share a two-bedroom apartment with a swimming pool, hot tub, and gym for $400 a month. If she wants a taste of the big city, Miami is just 30 minutes away.

As the number of young people making similar choices grows, smaller towns from Cary, North Carolina to Akron, Ohio are making an effort to become “preferred destinations” for young people fleeing expensive urban areas.

Given this trend, we offer five forecasts for your consideration:

First, in the next five to 10 years, increased competition among small- to medium-sized cities will lead to the development of affordable ex-urban areas that will attract both corporate residents and the young talent they need to run their businesses. Many of these will be in towns that have a university presence, such as Madison, Wisconsin; Fargo, North Dakota; Rolla, Missouri; and Fayetteville, Arkansas.

Second, towns that make a conscious effort to create a welcoming and livable atmosphere for both corporate and individual transplants will become economic engines for entire geographic areas. The synergistic effect of pushing young people into those areas will attract new businesses, such as restaurants, retailers, and entertainment venues, to revitalize economies that have grown stagnant. Those who move in early will reap the benefits.

Third, the South will become a premier destination for this mass migration. This has already begun in earnest, with Martha Stewart building a life-style suburb near Raleigh, North Carolina, and companies putting up corporate headquarters in formerly out-of-the-way places. Already, a third of the residents in the South are transplants from other areas. And the region has become more industrialized than any other area of the country. By 2030, according to projections by demographics experts, 40 percent of the American population will live in the South.

Fourth, with mature technological infrastructure making it increasingly possible, corporations will move to a model where most employees can live in any geographical area they wish. This will reduce the corporate footprint, even while lowering costs and increasing productivity. The rule will be that whatever can be decentralized will be. Nevertheless, people will still need to live where services, such as grocery and retail stores, are centralized.

Fifth, while the largest urban areas, such as New York and Los Angeles, will be relatively stable in the face of this trend, some cities will be negatively impacted by it. According to The Review of Economics and Statistics, published by the Massachusetts Institute of Technology, there is a correlation between crime and falling population. Without proper management, this could mean that more cities will begin to look like Detroit, with tenacious problems of urban decay, while the new beneficiaries of this urban flight will flourish.

References List :
1. MIT Sloan Management Review, Winter 2003, "Exploring Scale: The Advantages of Thinking Small," by Frits K. Pil and Matthias Holweg. ⓒ Copyright 2003 by Massachusetts Institute of Technology. All rights reserved.