Pandemic’s effect on residential real estate
By: J. David Chapman/April 16, 2020
Real estate in the coming months will be affected by the coronavirus pandemic. To what degree will likely depend upon the duration of the economic shutdown needed to corral the health effects of the virus on people.
We consider two scenarios.
The first is a V-shaped recovery where the economy comes back very quickly. The second is a U-shaped recovery that assumes the country will take a little longer to solve the health issues and therefore we will remain in a partial shutdown situation for a longer period of time.
The longer our economy is shut down, the longer it will take and more painful the startup. Even under the best-case scenario of a V-shaped recovery, there will be significant disruption to all aspects of real estate. Specifically, I want to consider behavior changes in regard to urban vs. suburban residential preference.
In the last week, I have seen many real estate gurus nationwide predict a change in the residential real estate market based on changed behavior due to the coronavirus pandemic. We have seen a significant return to urban markets by millennials and empty-nesters in the last few years. This desire to be near amenities, walkable environments, and a community-focused atmosphere has created a renaissance in more dense areas where placemaking and revitalized downtowns are valued. The question becomes: Has the pandemic changed the desire to live, work, and play in more urban-oriented environments or will people prefer the isolation of a suburban or exurban lifestyle?
Experts are assuming and predicting that the fear of living close to others will cause the urban renaissance to lose momentum and create a resurgence in people’s desire for the suburbs or even farther-out exurbs. They are forecasting significant sprawl issues driven by this desire for further isolation. Not so fast!
First of all, there is a difference in density and crowdedness. It is possible to create good, dense projects and environments that are not crowded. I agree people might be a little skittish about crowds after this experience; however, good developers have always considered crowdedness vs. density. Secondly, my opinion is there is going to be significant pent up demand for community-focused activities found in urban environments and any fear-based behavior will take a backseat to the desire need to be together with family, friends and coworkers.
J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).